December 12 (SeeNews) - Moody's Investor Service has downgraded the corporate family rating (CFR) of Turkish construction firm Yuksel Insaat to Caa2 from Caa1 and its probability of default rating (PDR) to Caa2-PD from Caa1-PD, the ratings agency said on Thursday.
The rating cut reflects also the $200 million (145 million euro) notes due 2015 issued by the company. The outlook on the ratings has been changed to negative, Moody's said in a statement.
The ratings agency also said in the statement:
"[..] This concludes the ratings review initiated on October 18, 2013 and maintained on January 17, 2013 and May 30, 2013.
RATINGS RATIONALE
The downgrade of the PDR to Caa2-PD reflects the higher default risk and associated uncertainty given the (1) ongoing and protracted negotiations with the noteholders' committee (NC) and (2) the increase in debt. The uncertainty over the future capital structure of the group and the position of noteholders in the capital structure has prompted Moody's to downgrade the CFR to Caa2.
Firstly, Yuksel has yet to reach an agreement with the NC and reach out to other noteholders not part of the NC following the formation of the NC, that make up about 46% of noteholders. A quorum of 50% is required in order to reach a majority amongst noteholders for changes, such as the relaxation of certain conditions of the USD200m notes due in 2015.
Whether Yuksel can reach a consensual agreement with noteholders is not certain.
Secondly, the company reported USD 454.4m of financial debt related to the notes and bank debt per 31 October 2013. The company has in the interim (in November and December) made bank debt repayments of USD 59m.
Moody's debt calculation includes USD 79.6m of debt guaranteed by Yuksel.
The increase of group debt diminishes the position of noteholders in the capital structure despite the receipt of USD155m of disposal proceeds, which may not be fully available to noteholders.
Yuksel has used short-term financing lines from banks in order to fund operational uses such as working capital. Should these lines no longer be available and if there are delays in receiving disposal proceeds expected in the first quarter of 2014, this could exert further pressure on the company's liquidity and ability to service its debt. As of 31 October, 2013, the company had USD16.6m of unrestricted cash from which it made an interest payment on its notes on November 12, 2013 of USD9.5m, but has increased its cash holding to USD 110m following the receipt from executed asset disposals.
The negative outlook reflects the uncertainty over the future capital structure.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the downgrade and the negative outlook, an upgrade is unlikely. For the outlook to be stabilized or ratings to be upgraded Moody's expects a conclusion of the strategic review as well as visibility, stability and viability of the company's future capital structure.
Ratings could be further downgraded if it if becomes clear that (1) bonds become subordinated to other debt instruments, (2) recovery prospects weaken or (3) default risk further increases."
($ = 0.727 euro)