Some…err…journalistic correction today from Fairfax:
Loss-making iron ore miner Atlas Iron has been granted some breathing space by the majority of its lenders, who have agreed to a plan to cancel $US132 million ($183 million) of their debt in exchange for options and shares in the junior exporter.
In a major refinancing that ratings agencies said was a de facto debt default, Atlas’ outstanding debt will fall from $US267 million to $US135 million, and the maturity date will be pushed back from December 2017 to April 2021.
The deal will also help Atlas to avoid a breach of its debt covenant on December 31, which requires the company’s total asset value to be at least double its secured debt at all times.
However, the refinancing will dramatically change the share register if it goes ahead, with lenders set to hold 70 per cent of the shares and options on issue if approved.
The CRA’s are equally hopeless here. From S&P:
Services lowered its long-term corporate credit rating on Atlas Iron Ltd. (Atlas Iron) to ‘CC’ from ‘CCC+’. The outlook is negative. At the same time, we lowered the rating on the company’s senior secured notes to ‘CC’ from ‘CCC+’. The recovery rating remains unchanged at ‘4’.
“We lowered the rating on Atlas Iron because we view the company’s signed restructuring support agreement with its lenders of the term loan B (TLB) as a distressed debt exchange equivalent to a de-facto default,” said Standard & Poor’s credit analyst May Zhong.
And Moody’s:
Moody’s Investors Service has today downgraded the rating on the USD267 million senior secured term loan B due December 2017 to Ca from Caa3. At the same time, Moody’s has also downgraded Atlas Iron Limited’s corporate family rating to Ca from Caa3. The outlook for all ratings is negative.
Let’s face it, with the firm about to be 70% owned by the creditors, this is default pure and simple. It’s either that of AGO has just successfully negotiated the loss of three-quarters of its equity!
But the biggest gong on the day has to go to the ASX which saw AGO shares jump 20%:
Why would anyone buy yesterday when they are about to be forced to agree to be diluted by 70%? Somehow I find this episode symbolic of Australia’s current circumstances.
