Overview
-- South-Africa based recycler New Reclamation Group Pty Ltd. (Reclam)
recently announced that between April and October 2012, it acquired 24% of its
outstanding secured notes in the open market at a significant discount of
about 25%.
-- We consider that these buybacks constitute a distressed exchange
because of Reclam's weak liquidity and our uncertainty over its ability to
repay the notes by the time they mature on Feb. 1, 2013.
-- We are therefore lowering our long-term corporate credit rating on
Reclam to 'SD' (selective default) from 'CCC-'.
-- We are also lowering our issue rating on Reclam's EUR116 million secured
notes to 'D' (default) from 'CCC-'.
Rating Action
On Nov. 7, 2012, Standard Poor's Ratings Services lowered to 'SD' (selective
default) from 'CCC-' its long-term corporate credit rating on South-Africa
based recycler New Reclamation Group Pty Ltd. (Reclam).
At the same time, we lowered our issue rating on the company's EUR116 million
secured notes (previously EUR153 million) to 'D' (default) from 'CCC-'. The
recovery rating on the secured notes remains unchanged at '4', indicating our
expectation of average (30%-50%) recovery in the event of a payment default.
Rationale
The downgrades reflect Reclam's recent announcement that between April and
October 2012, it acquired 24% of its outstanding secured notes in the open
market at a significant discount of about 25%. We do not consider the buybacks
to be opportunistic, but rather to constitute a distressed exchange, because
of the company's weak liquidity and our uncertainty over its ability to repay
the notes by the time they mature on Feb. 1, 2013. In addition, we understand
that management could continue to buy back further notes in the coming weeks.
During its public investor call, management mentioned that the buybacks were
funded by internally generated cash and unsecured borrowings with a maturity
profile that extends beyond the maturity of the notes and is not conditional
on the conclusion of any other refinancing. We find this disclosure to be
poor, and as not providing the essential information we need to fully
understand the current situation.
In light of the possibility of further buybacks, we do not envisage raising
the 'D' rating on the secured notes. We will re-evaluate the corporate credit
rating in the near term, but based on the information we have at the moment,
we do not expect to raise it above 'CCC-'. The 'CCC-' rating would reflect our
view of the risks associated with Reclam refinancing the notes and our
uncertainty over whether the group will change its capital structure before
the notes mature.
For further details on our previous rating actions on Reclam, see "South
Africa-Based Recycler The New Reclamation Group Downgraded To 'CCC-' On
Refinancing Risk; Off Watch; Outlook Neg," published June 29, 2012, on
RatingsDirect on the Global Credit Portal. For an explanation of our approach
to distressed exchange offers, see "Rating Implications Of Exchange Offers And
Similar Restructurings, Update," published May 12, 2009.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
Portal, unless otherwise stated.
-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct.
1, 2012
-- South Africa-Based Recycler The New Reclamation Group Downgraded To
'CCC-' On Refinancing Risk; Off Watch; Outlook Neg, June 29, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Methodology And Assumptions On Risks In The Metals
Industry, June 22, 2009
-- Rating Implications Of Exchange Offers And Similar Restructurings,
Update, May 12, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Ratings List
Downgraded
To From
New Reclamation Group Pty Ltd.
Corporate Credit Rating SD CCC-/Negative
Secured Debt D CCC-
Recovery Rating 4 4
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
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