Fitch downgrades InterCement on bond swap
June 29, 2020
Brazilian cement company's ratings drops two notches to C after it offers to exchange 2024 notes for new 2027s
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Fitch Ratings said it downgraded InterCement by two notches after the Brazilian cement company asked to exchange its 5.75% 2024 bonds for new notes that mature in 2027.
Fitch cut InterCement's rating to C from CCC- and said the proposed swap involves a "material reduction in terms" for bondholders because it lowers the principal amount by around 15% and does away with "restrictive covenants," it said in a report on Thursday.
The new notes carry a coupon of 7%, but they could go up to 8.5% if InterCement exercises a payment-in-kind (PIK) option for as much as 100% of interest within 18 months of the exchange, according to Fitch.
InterCement said in a statement on Thursday that the exchange would give it the "necessary flexibility to overcome the current economic downturn... and improve our capital structure and liquidity position by extending the maturity profile of the existing notes."
Bondholders that accept the offer by July 8 will receive $850 in new notes for every $1,000 in 2024 notes. After that, they will get $800 in 2027 bonds for every $1,000 in old notes through July 22. At least 85% of bondholders have to agree to the offer for the exchange to go through, InterCement said.
Morgan Stanley, Banco do Brasil, Bradesco BBI and Itaú BBA are the dealer managers on the exchange.
InterCement sold BRL4.7 billion ($866 million) worth debentures in the local market to refinance outstanding debt earlier this month. The company now holds more than 50% of debt in Brazilian reais and roughly 35% in US dollars.