Over the last five years corporate Australia has raised a cool $667 billion in US denominated debt ($970 billion) on the international capital market.
The bulk of those issuances have been fathered by resources companies made ambitious by a once-in-a-century commodity boom, and lured to non-traditional US dollar debt markets by low interest rates and the lenders’ ready appetite for risk.
But the result of all that and the now apparent bust, according to the world’s biggest debt restructuring adviser, is that the boards and management of Australian companies simply have to change the way they curate the liabilities side of their balance sheets.
The crisis manager in question here is US investment bank Houlihan Lokey. Its most recent Australian master-class was the Yuletide restructure of a $US267 million tranche of debt raised from US lenders by Pilbara junior Atlas Iron. Just under half of that debt will be swapped into 70 per cent of the death-defying iron ore miner’s equity and the balance of the debt will carry a lower interest rate. The net result is that Atlas will have a new owner and the interest bill of their company will be cut by 65 per cent.
From Matthew Stevens at the AFR:
The man from Houlihan who led the Atlas deal was New York-based managing director William “Tuck” Hardie. He reckons the progress of Atlas management to credit resettlement should be studied closely by any and all Australian companies that joined the great US dollar credit binge.
One could be horrified at the original sin of borrowing unhedged in US dollars. Some will argue that it is naturally hedged given Australian dollar costs but only partially given the product is also priced in US dollars. But, really, I don’t see anyone going out of business owing to forex misjudgment. Atlas would still be buggered if it had borrowed free money from Mars. Its dirt is simply too expensive to mine outside of boom conditions. The same applies to Fortescue, I’m afraid.
What we are really discussing is the seizure of mining assets by US lenders in a last desperate attempt to keep the assets productive. Good luck to them, I say, but it offers you an insight into just how deep this mining rout will run. Atlas is as dead a company as any that I can recall yet there is no end to the rope played out to it.
At least not so far, we’ll come to the end of it this year, once the new owners begin to burn their own cash supporting it.
