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RLPC-Ineos debt falls sharply on restructuring fears

LONDON, Nov 18 (Reuters) - The value of Ineos Group’s [INEOSP.UL] senior loans and high-yield bonds fell sharply on Tuesday on continued fears about the highly leveraged company’s ability to manage its huge debt.

The drop in the secondary value of Ineos’ loans and bonds preceded a downgrade by Moody’s on Tuesday, which came a day after Ineos released weak third-quarter results and asked its banks for a two-quarter holiday on its loan covenants to avoid a covenant breach. [ID:nLH652337] The markets’ reaction shows that investors remain unconvinced that the world’s third-largest chemicals company will be able to solve its problems by the end of May and avoid a full balance sheet restructuring on its 7.62 billion euro loan and bonds.

“Ineos is staving off the inevitable balance sheet restructuring. They need to sell assets to preserve their position and are buying five months to pull the rabbit out of the bag,” a senior loan trader said.

The value of Ineos’ loans initially rose after the waiver announcement on Monday, but started to turn down as the market digested the implication that there may be more bad news ahead for the company.

The company’s euro-denominated term loan B and C paper loans lost around two points to 47.50-50.50 percent of face value on Monday, and losses continued on Tuesday as Ineos’ second lien loans fell around four points to 25-32 percent, down from 30-36 percent on Monday.

Meanwhile, its bonds fell to be bid at 17 percent of face value and were offered at 19 percent, down from 22-24 percent on Monday, traders said.

Ineos’ debt protection cost soared to over 70 percent upfront, indicating that an investor would have to pay seven million euros upfront to protect ten million euros of the company’s debt against default.

Sector peer Lyondell Basell’s bonds have also fallen sharply in the last two days to 13-15 percent of face value as the outlook for the chemicals sector deteriorates.

DOWNGRADE HURTS CLOs

Moody’s downgrade is a heavy blow for funds, particularly collateralised loan obligations (CLOs) that hold Ineos’ debt in ratings-linked baskets, and the downgrade could trigger forced selling, traders said.

Moody’s cut Ineos’ corporate family rating by two notches to B3 from B1 and said it may consider further downgrades. The company’s senior first lien loans were cut to B2 and the second lien loans to Caa2, along with the company’s bonds.

While Ineos’ bankers are expected to approve the waiver in return for increased margins and fees, many believe that the company is facing an uphill struggle as it tries to reduce its debt through asset sales that are difficult to execute amid moribund debt markets.

Ineos is targeting full-year earnings before interest, tax, depreciation and amortisation (EBITDA) of 1.7-1.8 billion euros, but will deduct 400 million euros of inventory holding losses on its 10 million barrel oil reserve and 180 million euros of exceptionals related to Hurricane Ike and a strike at its Grangemouth facility, the company said on Monday.

Traders say that EBITDA of less than 1.2 billion euros will result in negative cashflow that will further reduce Ineos’ room for manoeuvre.

“The environment is so bad that all the things that Ineos can do are wiped out by the nuclear bomb out there - the company is too leveraged,” the senior loan trader said. (Reporting by Tessa Walsh; editing by Simon Jessop)

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