December 20, 2012 |
|Fitch Ratings-London/Moscow-18 December 2012: Fitch Ratings has assigned Russia's EuroChem Global Investments Limited issue of loan participation notes for the aggregate principal amount of USD750m 5.125% due 2017 a final senior unsecured 'BB' rating.|
The rating action follows a review of the final documentation materially conforming to the draft documentation reviewed when Fitch assigned the expected 'BB(EXP)' rating on 28 November 2012.
- Eurochem Borrower/Guarantor of the Notes
The transaction is structured in the form of a loan from the issuer, EuroChem Global Investments Limited, an Ireland-based private limited liability company established for this sole purpose, to the borrower, Eurochem, pursuant to the terms of a loan agreement. The Notes are limited recourse obligations of the issuer under a trust deed. They are secured by a first-fixed charge with full title guarantee in favour of the trustee for the benefit of itself and the noteholders of certain of its rights and interests under the loan agreement.
- Potential Reorganisation and Borrower Substitution
The documentation contains provisions for a potential future corporate reorganisation whereby the full ownership of Eurochem and certain of its assets and liabilities (including the Notes) will be transferred to a new offshore holding company, the new parent. The new parent will accede to the loan agreement as a guarantor prior to the reorganisation, and will replace Eurochem as a borrower post reorganisation, provided that at least 70% of Eurochem's outstanding debt has been novated to it. Fitch notes that the structural subordination concerns arising from the existence of outstanding debt at Eurochem's level would be addressed through a full and unconditional guarantee from Eurochem to the new parent.
- Senior Unsecured Obligations of Eurochem
Proceeds will be used for refinancing and general corporate purposes. The Notes constitute direct, general, unconditional, unsecured and unsubordinated obligations of Eurochem and will rank pari passu with all its other unsecured and unsubordinated indebtedness. Other covenants include a negative pledge (with permitted liens), limitation on indebtedness with a total debt-to-consolidated EBITDA ceiling of 3.5:1 and limitation on restrictions on distributions from subsidiaries. Events of defaults include cross default to any debt of the borrower, the guarantor and their respective subsidiaries with a USD50m threshold. The documentation does not include a change of control clause.
- Subordination Not a Concern
Post issuance and refinancing, Fitch estimates that the pre-export credit facility (PXF) of RUB39.6bn (USD1.3bn) and collateralised margin loans of RUB0.8bn (EUR15m) will represent around 40% of consolidated borrowings. While not immaterial, this is strongly mitigated by the fact that under the base rating case, the secured debt to EBITDA ratio stands at 0.8x at end-2012 and reduces rapidly once the PXF loan starts to amortise in August 2013.
Fitch also notes that existing borrowings all benefit from sureties from some of the group's Russian subsidiaries. However, the resulting prior-ranking status is weakened by limitations in the enforceability of these sureties under the Russian legal regime.
Concerns about Eurochem or the new parent's ability to upstream cash to service the Notes are also addressed by a covenant which precludes restrictions of distributions (dividends, loans or assets) from the borrower/guarantor's subsidiaries.
RATING SENSITIVITY GUIDANCE:
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Completion of one of the potash projects, combined with a conservative financial profile.
An upgrade is currently considered unlikely due to the group's large investment programme and the shareholder's opportunistic strategy.
Negative: Future developments that could lead to negative rating action include:
- Shareholders distributions or shareholder-friendly actions detrimental to debt creditors or resulting in sustained increase in FFO net leverage above 2.5x.
- Sharp deterioration in fertiliser prices or demand with EBITDA margin sustained below 20%.
|Status||Country of risk||Maturity (option)||Amount||Issue ratings (M/S&P/F)|
|Full company name||JSC EuroChem Mineral and Chemical Company|
|Country of risk||Russia|
|Country of registration||Russia|
|Industry||Chemical and petrochemical industry|