Moody's lowers PBG’s PDR to Caa3/LD and CFR to Caa1
Moody's lowers PBG’s PDR to Caa3/LD and CFR to Caa1
Moody’s has updated the ratings assigned to PBG in connection with the current situation of the Group. Analysts have lowered the Company’s probability of default rating (PDR) to Caa3/LD from B2. This downgrade comes as consequence of the standstill agreement made in early May with the Company’s financing banks and the extension of some of its bank facilities. In turn, the downgrade of PBG’s corporate family rating (CFR) from B2 to Caa1 reflects the deterioration of the PBG Group’s debt ratios.
The Agency treats the standstill agreement with the banks and the extension of maturities of certain liabilities as a limited default (LD). After three days, Moody's will remove the LD designation.
Moody’s draws attention to the step-up in the debt to EBITDA ratio (as adjusted by Moody’s) to 10x as at the end of the first quarter of 2012, from 4.7x at the end of the third quarter of 2011. This increase came on the back of expenses related to the acquisition of the 66% interest in Rafako, currently a key asset in the PBG Group, the Group’s increased exposure to the road sector and weaker than expected operating performance.
The Agency points to the measures taken by the PBG Group with a view to improving its liquidity position, such as disposal of non-core assets and refinancing of short-term debt by longer-term financing, for example by raising funds through an issue of convertible bonds. By selling non-core assets, including real property, the PBG Group may raise PLN 100 million this year, and the value of the planned convertible bonds issue is PLN 1.2 billion. Negotiations are currently under way with potential investors who might be interested in subscribing for the bonds.
The rating also reflects a lower scale of the Group’s business when compared with its global peers. The Agency notes however, that the Group’s more highly specialized business segments, such as natural gas and water, provide some protection for the Group from competition.
In its rating comments, Moody’s concludes that the Group’s EBITDA margin has moved down from an average of 12% in 2007-2009 to 7.5% in 2011. This decline has been caused by the Group’s expansion outside the highly profitable natural gas and water segments, for instance into road construction. The acquisition of Rafako and Energomontaż-Południe, made at the cost of higher debt ratios, and the gaining of strong exposure to the highly profitable power construction segment, should however bring improved margins in the years to come.
“Moody’s credit rating primarily focuses on our current standing. However, it is worth pointing out that our efforts to secure diversified financing sources, including a bridge facility, sale of non-core assets and issue of bonds convertible into shares, may radically change the picture and significantly improve our liquidity, triggering rating upgrade by the agency,” said Przemysław Szkudlarczyk, Vice-President of the PBG Management Board.
The ratings have been placed on credit watch for possible downgrade. In particular, the agency analysts will monitor PBG’s capacity to improve its liquidity position, which depends on arrangements with banks, access to sources of financing of day-to-day operations, as well as the Group’s prospects reflected in its forecast financial results to be published in June.
The principal methodology used in rating PBG was Moody’s Global Construction Methodology, published in November 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.