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Rating Action:

Moody's assigns (P)B3 rating to NWR's proposed EUR275 million notes issuance

14 Jan 2013

Approximately EUR1,033 million of rated debt affected

Milan, January 14, 2013 -- Moody's Investors Service has today assigned a provisional (P)B3 rating with a loss given default (LGD) assessment of LGD6 - 90%, to New World Resources N.V. (NWR) proposed EUR275 million of senior unsecured notes. The group's B1 Corporate Family Rating (CFR) and B1-PD Probability of Default Rating (PDR) remain unchanged. The senior unsecured B3 rating on the existing EUR300 million notes (EUR258 million outstanding) due in 2015 and the senior secured Ba3 rating on the EUR500 million notes due in 2018 are also unchanged. The new notes will be used to repay the existing notes due 2015. The outlook on the ratings is stable.

Moody's issues provisional ratings in advance of the final sale of securities and these reflect Moody's credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign definitive ratings to the proposed senior bank facilities. A definitive rating and assigned LGDs may differ from provisional ones.

RATINGS RATIONALE

"NWR's B1 CFR and stable outlook reflect our view that despite some expected deterioration in the company's key credit metrics over the next six to twelve months, key financial ratios will remain acceptable for the current rating category, while the company should be able to weather the current difficult market conditions and a potential reduction on financial covenants headroom", says Paolo Leschiutta, a Moody's Vice President - Senior Credit Officer and lead analyst for NWR. "In Moody's view, mild temperature so far this winter and over supply of thermal coal in the region are likely to have had a negative impact on NWR's operating performance during the fourth quarter of fiscal year-end (FYE) December 2012. This, together with sluggish market condition overall in terms of steel demand in the region, is likely to result in significant tightening of the financial covenants' headroom during the current FYE December 2013", continued Mr. Leschiutta.

While demand for coking coal and coke is expected to remain flat at best over the short term, we believe that oversupply of thermal coal is likely to have resulted in a costly build up of inventory towards the end of FYE December 2012. Shipment volumes of thermal coal during 2012 declined by 19.2% compared to the prior year. In light of the group high operating leverage, NWR's profitability could remain at depressed level over the next six to twelve months on a last twelve month basis, reducing headroom on financial covenants. Nevertheless, financial leverage, calculated as debt to EBITDA as adjusted by Moody's, is not expected to exceed significantly 4x.

Financial covenants are contained in NWR's Export Credit Agency (ECA) facility, outstanding for EUR85 million as at the end of September 2012, and in the group EUR100 million revolving credit facility (RCF), currently fully undrawn. Although we take comfort from the company relatively high cash balances, we will continue to monitor closely the degree of deterioration that lower profitability could have on the company's liquidity profile.

Overall, NWR's B1 CFR reflects (1) the expected ongoing volatility in the steel production market, which represents the key revenue driver for NWR's most profitable coking coal and coke businesses; (2) the high degree of customer and business concentrations; and (3) NWR's significant operating risks in view of the depth of its mines. These negative credit considerations are offset by: (1) the company's strategic position as a major player in its sector in Central Europe, benefitting from close proximity to key customers; (2) a relatively ample reserve base; and (3) the progress NWR has achieved in improving cost efficiency and safety through its modernisation programmes. The rating is also supported by the expectations that the company will continue to generate relatively strong cash flow although this might be impaired over the next six to twelve months by the currently difficult market conditions.

The (P)B3 rating (LGD6 -- 90%) assigned to the proposed notes issuance reflects the fact that the new notes, unsecured and with no guarantees from operating companies, will have the same seniority as the existing 2015 notes and therefore will be subordinated to the rest of group's debt.

The notes due in 2018, instead, benefit from full guarantees from, and are secured by share pledges of, NWR's main operating subsidiaries. Although we assign a relatively low value to the pledge on shares, the 2018 notes rank senior in terms of security to the notes due in 2015 and the EUR85 million (outstanding at September 2012) ECA loan, which do not benefit from any guarantees from operating subsidiaries (although OKD is a co-obligor under the agreement). The EUR100 million revolving facility, currently fully drawn, ranks ahead of both bonds.

WHAT COULD MOVE THE RATING UP/DOWN

The ratings could be upgraded if NWR demonstrated an ability to weather potential cyclicality in the market and sustain a robust financial profile, with financial leverage remaining below 3x and CFO-dividends/debt in the high teens on an ongoing basis. Before considering an upgrade Moody's would expect an improvement in the company's liquidity profile.

Conversely, negative pressure could arise in case of further deterioration in NWR's liquidity profile or market conditions. Ratings could also be downgraded in the event that CFO-dividends/debt diminished towards the low teens or if financial leverage increased above 4x for a prolonged period of time.

PRINCIPAL METHODOLOGY

The principal methodology used in rating NWR was the "Global Mining Industry" rating methodology, published in May 2009. Other methodologies used include "Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA", published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in the Netherlands, NWR is the largest hard coal mining group in the Czech Republic and operates through its main subsidiary OKD, a.s. The company reported revenues of EUR1.6 billion and EBITDA of EUR454 million during FYE December 2011. The company exploits the Upper Silesian basin in the north-eastern part of the Czech Republic and is expanding its activity in Poland.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Paolo Leschiutta
VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's assigns (P)B3 rating to NWR's proposed EUR275 million notes issuance
No Related Data.
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