Approximately EUR 253 million of rated debt affected
Johannesburg, December 10, 2010 -- Moody's Investors Service has today downgraded the Corporate Family
Rating (CFR) of The New Reclamation Group (Pty) Ltd ("Reclam") and the
rating of its EUR 253 million 2013 Senior Secured Notes to Caa2 from Caa1
due to increased concerns about the company's liquidity situation
and a significant weakening in the operating profile in 2010. The
ratings have been placed on review for further possible downgrade.
RATINGS RATIONALE
Reclam's ratings downgrade to Caa2 from Caa1 reflects primarily Moody's
concerns about the deteriorating liquidity position of the company that
support our assessment of an increased risk of default.
In particular, the company's cash balance and cash generation combined
with the current availability under its credit facilties, of which
ZAR 207 million is expiring at the end of February 2011, may be
insufficient to address its debt obligations and other liabilities over
the next 12 months.
Reclam's main debt obligations in the next 12 months will include:
(a) ZAR 207 million credit facility (that expires in February 2011),
(b) ZAR 295 million shareholder loans that become payable, and (c)
EUR 6.2 million interest payments under its 2013 senior secured
notes, to be paid in February and August. Both interest and
principal for Reclam's senior secured notes are unhedged at this
point thus exposing the company to foreign exchange volatility.
The rating action also reflects a weaker operating profile of the issuer,
excluding the impact of its diamond mining operations, as the company
faces a protracted delay in the recovery in demand such that its operating
margins and cash flows continue to be negatively impacted. When
comparing Reclam's results for the first three months ended in 30 September
2010 versus the same period in 2009, gross profit excluding diamond
mining operations decreased by 10%. Operating profit excluding
diamond mining operations fell by 76%, which was partially
explained by an increase in operating expenditure excluding diamond mining
operations by 23%. Consequently EBITDA, excluding
diamond mining operations, fell 58% from R 91.7 million
to R 38.2 million. As a result, we expect that in
2010, Reclam may remain free cash flow negative. At the end
of 3Q 2010, the company reported ZAR 67 million in cash balances.
The review of the ratings will focus on Reclam's ability to successfully
extend its liquidity facility beyond February 2011 and implement a business
plan that will addresses the deterioration in its operating performance
to restore the cash flow generation and liquidity position to levels sufficient
to successfully address all near-term debt maturities and interest
payments.
Downgrades:
..Issuer: New Reclamation Gr (Proprietary) Ltd (The)
.... Probability of Default Rating,
Downgraded to Caa2 from Caa1
.... Corporate Family Rating, Downgraded
to Caa2 from Caa1
....Senior Secured Regular Bond/Debenture,
Downgraded to Caa2 from Caa1
On Review for Possible Downgrade:
..Issuer: New Reclamation Gr (Proprietary) Ltd (The)
....Senior Secured Regular Bond/Debenture,
Placed on Review for Possible Downgrade, currently
Outlook Actions:
..Issuer: New Reclamation Gr (Proprietary) Ltd (The)
....Outlook, Changed To Rating Under
Review From Negative
Moody's last rating action regarding Reclam occurred on March 3,
2009 when we downgraded its ratings to Caa1 from B3.
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Based in Johannesburg, South Africa, The New Reclamation Group
is one of the largest producers of recyclable secondary ferrous (iron-based)
and non-ferrous (non iron-based) metal in South Africa.
Reclam also produces recycled glass, paper, cardboard and
plastic products, aluminium ingots and pellets, as well as
copper-sulphate chemicals. Its products are used as input
materials in industrial manufacturing processes. These include
steel, various no-ferrous metals, glass, paper
and cardboard. The company is also engaged in diamond mining in
Zimbabwe.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Johannesburg
Soummo Mukherjee
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
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London
Elena Nadtotchi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service South Africa (Pty) Ltd.
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Moody's downgrades Reclam's ratings to Caa2 and leaves the ratings under review for further possible downgrade