Fitch upgrades Ferrexpo to 'B', positive outlook
Fitch Ratings has upgraded Ukraine-based Ferrexpo Plc's Long-Term Issuer Default Rating (IDR) to 'B' from 'B-', reads a report on the rating agency's website.
"The outlook on the IDR is positive. In addition, Ferrexpo's senior unsecured ratings have been upgraded to 'B' from 'B-'. The Recovery Rating is unchanged at 'RR4'," the report says.
"The rating action reflects Ferrexpo's improved liquidity profile following the signing of a new pre-export financing (PXF) facility in November 2017 and our expectation that the company will be able to redeem its fairly large upcoming debt maturities in 2018 and 2019 from internally generated cash flows and available cash balances. The positive outlook factors in our view that, should Ferrexpo maintain a solid liquidity profile, its credit profile would be commensurate with a 'B+' rating," Fitch experts said.
"Ferrexpo is now rated one notch above the 'B-' Country Ceiling for Ukraine (B-/Stable). This is in line with our 'Rating Non-Financial Corporates Above the Country Ceiling Rating Criteria' and takes into account the company's hard-currency external debt service cover, which is expected to remain above 1x as well as the company's cash balances outside Ukraine," they stated.
"Ferrexpo's liquidity was supported by a new three-year $195 million PXF facility provided by a syndicate of international banks, which together with internally generated cash flows and available cash balances will allow the company to meet its fairly large upcoming debt maturities in 2018 and 2019. The company has demonstrated a clear path to deleveraging since end-2015. We estimate Ferrexpo's funds from operations (FFO) adjusted gross leverage to have declined to 1.4x at end-2017 (2016: 1.8x; 2015: 3.4x) and to fall further to 1.0x in 2018, in line with our expectations of positive free cash flow (FCF) generation and a declining debt balance," according to the document.
"The company is on track to redeem its eurobonds due in two equal instalments in April 2018 and April 2019 (total $346 million) as well as the remaining $131 million of its $350 million PXF facility due 2018, among other bank debt," it says.
"Fitch upgraded Ferrexpo's Long-Term IDR to 'B', one notch above Ukraine's Country Ceiling of 'B-' due to the improvement in the company's hard-currency external debt service ratio following the signing of its new PXF facility in November 2017. We expect the ratio to remain above 1x for the next two years. All of Ferrexpo's earnings are in hard currency (U.S. dollars), with cash held outside Ukraine, thus the company is able to service its hard-currency debt with recurring hard-currency cash flows and cash balances. Ferrexpo's Ukraine operations have not been affected by the military conflict in the Donbas region, 425 km away," the experts added.