ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

Polish Steel Maker Cognor Upgraded To ‘B-/B’ On Ongoing Refinancing And Supportive Market Conditions; Outlook Stable

          PARIS (S&P Global Ratings) July 20, 2018--S&P Global Ratings today raised its long-term issuer credit rating on Poland-based steel producer Cognor Holding S.A. to 'B-' from 'CCC+'. The outlook is stable.
          The short-term issuer credit rating was raised to 'B' from 'C'. 
          At the same time, we raised our issue rating on Cognor's senior secured notes due 2020 to 'B-' from 'CCC+'. The recovery rating is '3', indicating our expectation of 50%-70% recovery (rounded estimate 55%) in the event of a default. We expect to withdraw the rating on the senior secured notes following their redemption. 
          We withdrew our 'CCC-' and '6' issue and recovery ratings on the exchangeable notes due 2021 at the issuer's request.
          Both instruments were issued by Cognor International Finance PLC. 
          The upgrade stems from Cognor's ongoing refinancing and stronger cash flows, supported by healthy steel market conditions. We now consider the company's capital structure to be sustainable, with adjusted debt to EBITDA at about 3x by the end of 2018, compared with close to 5x in 2017 and an unfavorable debt profile.
          We view the refinancing as pivotal for the company, with a positive impact on the size of its absolute debt, maturity profile, cash generation, and liquidity. The main features of the refinancing include: 
          - A reduction of debt by about Polish zloty (PLN) 140 million (about EUR32.5 million), funded partly by the recent PLN40 million equity issue and available cash. 
          - Extension of debt maturity to December 2022 from February 2020.
          - A material reduction in interest expenses (by about PLN30 million), due to much lower interest rates on the term loan compared with 12.5% on the existing notes.
          After the refinancing, the company would have adjusted debt of PLN505 million, comprising a EUR60 million term loan, EUR20 million of exchangeable notes (original amount EUR25 million) due February 2021, and PLN122 million of trade receivables. As part of our adjustments we don't deduct cash, which is expected to increase materially to PLN80 million–PLN100 million by 2019, from the currently modest level of about PLN20 million after the refinancing. 
          During 2017, Cognor saw strong demand for its products (scrap, billets, and finished products), with shipments increasing by 16% and revenues by 30%. Overall, steel demand in Poland increased by 4.6% on average last year. Under our base case, we project EBITDA of PLN160 million-PLN170 million in 2018, a material rise from our previous forecast of about PLN110 million. We have increased our projection because, in the first quarter of 2018, the company's adjusted EBITDA amounted to PLN58 million, with the first-half EBITDA likely to reach PLN100 million–PLN120 million. Looking ahead, we expect a decrease to PLN130 million-PLN140 million in 2019, due to a slight decline in steel prices and somewhat softer demand from the company's construction and automotive end markets. Those levels are well above the company's EBITDA of PLN50 million–PLN100 million in 2014-2016. 
          We expect that through the renewed flexibility, provided by a more sustainable capital structure and higher cash flow generation, Cognor may consider enhancing its liability management, such as by prepaying borrowings, to further reduce its vulnerability to price swings. We believe it could also consider new growth opportunities or higher dividends, although the latter are currently restricted in the term loan documentation. Refinancing of the term loan in the future may open the way for a more aggressive financial policy. 
          We continue to view Cognor's business risk profile as vulnerable, owing to its small scale (capacity of only 0.6 million tons out of 10.3 million tons of production in Poland overall in 2017), lack of geographic diversification, largely commoditized products, and exposure to cyclical end markets. On the positive side, the company has increased its capacity utilization to almost 100% and benefits somewhat from its vertical integration with scrap collection activities. 
          The stable outlook reflects Cognor's sustainable capital structure after its refinancing, and its ability to build some headroom under the rating in the currently favorable steel environment. Under our base case, the company will post EBITDA of about PLN170 million in 2018, translating into adjusted debt to EBITDA of 3.0x. This compares with adjusted debt to EBITDA of 3x-4x that we believe is commensurate with the current rating, given prevailing market conditions.
          We could lower the rating if an economic downturn or other operational setback were to erode Cognor's credit metrics, resulting in an unsustainable capital structure. This would be indicated, for example, by adjusted debt to EBITDA well above 5x or concentration of debt maturities without a clear refinancing plan. In addition, any deterioration of the liquidity position could result in a downgrade, such as inability to roll over trade receivables factoring. A negative rating action could also result from higher-than-expected dividend payments or capex. 
          We view the likelihood of an upgrade as remote in the short to medium term. A higher rating would require larger operations and a track record of conservative financial policy. In this respect, we see adjusted debt to EBITDA of 3x or lower during normal industry conditions, or 4x-5x during a downturn, to be commensurate with a higher rating. In addition, we would expect the company to show adequate liquidity.