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Rating Action:

Moody's changes Cognor's PDR to Ca-PD/LD following Default

05 Feb 2014

London, 05 February 2014 -- Moody's Investors Service has today assigned a limited default (/LD) designation to Cognor S.A.'s Ca-PD probability of default rating (PDR). At the same time, Moody's affirmed Cognor's Caa2 corporate family rating (CFR) and the Ca-PD PDR. The change of the PDR to Ca-PD/LD follows the company's failure to repay its EUR118 million senior secured notes issued by Zlomrex International Finance S.A due 1st February 2014 and the implementation of a distressed exchange restructuring via a Scheme of Arrangement. Moody's expects to reassess the PDR, the outlook and possibly the CFR shortly to reflect the new financing structure. The Caa3 ratings on Zlomrex International Finance S.A. senior secured notes, which are exchanged have been withdrawn. The Court led restructuring of the outstanding senior secured notes was completed on Tuesday 4th February 2014. Moody's expects to remove the "/LD" suffix after approximately three business days following the debt exchange.

The outlook on all ratings remains negative at this point.

RATINGS RATIONALE

The change in Cognor's PDR to Ca-PD/LD follows the failure by Cognor to repay the EUR118 million senior secured notes due 1st February 2014, which has been solved via a distressed exchange process. This constitutes a default under Moody's definition.

The Company have now successfully restructured the entire existing indebtedness of EUR118 million, plus the last accrued coupon payable on these notes of EUR7.5 million.

The restructuration has been effected pursuant to a English scheme of arrangement which is a court supervised procedure (the Scheme). The Scheme was sanctioned by the Court of England and Wales on 14 January 2014, followed by the subsequent recognition of this UK process by the US Court pursuant to an application made by the Company. Pursuant to the scheme, the company offers to exchange the outstanding notes by issuing new senior secured notes representing ca. 80% of the current notes principal outstanding plus accrued interests, and by issuing exchangeable notes representing ca. 20%. The primary objectives of the Scheme were to avoid the risk of any of the group companies having to file for bankruptcy or liquidation as a result of the due repayment of the EUR118 million senior secured notes and to provide the company with a more sustainable long-term capital structure.

RATINGS AND OUTLOOK

The CFR nevertheless remains constrained by the substantial debt burden which will not be reduced after the exchange offer since Moody's views the exchangeable notes as debt. Furthermore, the CFR will continue to reflect the overall continued weakness of the regional steel market. On the positive side Moody's notes that the debt restructuring will enable the company to strengthen its balance sheet and present an improved maturity and liquidity profile.

WHAT COULD CHANGE THE RATING - UP

A positive action on the ratings or the outlook could be considered after completion of the debt restructuring reflecting: 1/ the improved liquidity; 2/ improvement in the regional steel market conditions leading to higher margins; and 3/ leverage to be reduced over time.

WHAT COULD CHANGE THE RATING - DOWN

Negative pressure might develop if market conditions deteriorate affecting the cash generation and liquidity of the company or if the company is not able to reduce its gross leverage.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was the Global Steel Industry published in October 2012. 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 Poraj, Poland, Cognor S.A. is the largest trade of steel scrap and among the leading producers and distributors of high grade long steel products in its domestic market. Founded in 1990 as a pure scrap trader, the company has transformed itself into a fully integrated producer of steel products through a range of acquisitions mainly in the long steel production and distribution business. Cognor S.A. is listed on the Warsaw Stock Exchange; 65.98% of the company's shares are held by its founder Mr. Przemyslaw Sztuczkowski.

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Hubert Allemani
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes Cognor's PDR to Ca-PD/LD following Default
No Related Data.
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