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Rating Action:

Moody's downgrades NWR's CFR to Ca and its PDR to Ca-PD/LD following default at end of grace period; outlook negative

21 Aug 2014

London, 21 August 2014 -- Moody's Investors Service has today downgraded the corporate family rating (CFR) of New World Resources N.V. ('NWR') to Ca and its probability of default rating (PDR) to Ca-PD/LD, from Caa3 and Caa3-PD respectively. Furthermore, the rating agency has affirmed the Caa2 rating assigned to the EUR 500 million worth of senior secured notes due in 2018, and has downgraded by one notch to C the rating of the senior unsecured notes due in 2021. The outlook on the ratings remains negative.

RATINGS RATIONALE

The downgrade of the CFR to Ca reflects Moody's estimate of a family loss given default (LGD) rate of approximately 50% across NWR's current debt structure under the proposed consensual restructuring plan, which contemplates a distressed exchange transaction for both the senior secured and unsecured notes. The affirmation of the Caa2 rating on the senior secured notes, in particular, reflects Moody's estimate of an LGD rate of 29% under the terms of the proposed exchange of the existing senior secured notes for a combination of cash and new senior secured notes. The downgrade of the senior unsecured notes' rating to C reflects the rating agency's estimate of an LGD rate of 89% for the senior unsecured noteholders under the less favourable terms of the proposed distressed exchange for such category of notes, which includes a combination of cash, new mandatorily convertible notes and contingent value rights, whose projected value, at present, is difficult to assess and quantify.

The negative outlook reflects that further downward pressure could be exerted on the ratings if the company fails to complete the consensual restructuring plan with its bondholders and shareholders in line with the terms contemplated, or if another form of debt restructuring takes place resulting in a greater than currently expected loss for bondholders. Moody's notes the ongoing complexity of the restructuring transaction and the residual uncertainty as to whether it will be successfully completed, given important conditions still need to be met -- including an EUR 118 million rights issue and EUR 32 million placing scheduled for September and an agreement on a number of amendments to be reached with the lenders of an existing EUR 48 million facility, still under final negotiation.

The downgrade of the PDR to Ca-PD/LD reflects an increased likelihood of default for the whole capital structure given the considerable challenges the company is facing, and a weak liquidity position, which is actually weakening at a fast pace. This is because at the current depressed coal prices the company remains loss making and is increasingly burning cash, in spite of cost cutting and efficiency initiatives already being implemented by management to mitigate the negative price effect. As of June 2014, cash held on balance sheet was EUR 122 million, which represents a reduction of EUR 37 million compared to March 2014 and of EUR 62 million since the beginning of the year.

The application of the limited default '/LD' indicator to the PDR follows the non-payment of interest due on NWR's senior unsecured notes at the end of the 30 day grace period from the scheduled interest payment date of 15 July 2014. This missed interest payment meets Moody's definition of default (for one instrument in the capital structure), irrespective of any support or waiver from bondholders the company is benefitting from, based on the initial support already received by NWR from a majority of both senior secured and unsecured bondholders, who have signed lock-up agreements with the company, thereby accepting to support the restructuring and not to call any acceleration on the outstanding bonds as long as the restructuring process is progressing towards completion in line with the plan presented by the company.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure is currently unlikely, however it could be considered if the company manages to complete its planned restructuring and associated equity increase, which would lead to a more sustainable capital structure with a reduced debt burden and a better liquidity cushion. Positive rating pressure would also require signs of a gradual recovery in the reference markets for the company, especially with reference to the currently depressed coal prices.

Conversely, negative pressure on the ratings would result from an inability of the company to complete its consensual restructuring, and leaving no other alternative than insolvency and liquidation triggering an immediate acceleration of its debt obligations and possibly resulting in higher losses for bondholders than currently captured in Moody's ratings.

The principal methodology used in this rating was Global Mining Industry published in August 2014. 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. The company has four operating coal mines which during 2013 led to an annual sales of 9.7mt of coal. During 2013 the company disposed of its coke activities. The investment company CERCL Holdings Limited currently holds an approximately 64% stake in NWR through CERCL Mining B.V. (formerly known as BXR Mining B.V.).

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.

Gianmarco Migliavacca
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

Sandra Veseli
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 downgrades NWR's CFR to Ca and its PDR to Ca-PD/LD following default at end of grace period; outlook negative
No Related Data.
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