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Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 1 (7 lettori)
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Colt Defense’s Proposed Debt Restructuring Is Credit Negative
Last Tuesday, Colt Defense LLC (Caa3 negative) announced that it had launched an exchange offer for its
$250 million 8.75% senior notes due in 2017. The company also said that it had asked noteholders to
approve a prepackaged Chapter 11 reorganization plan that the company would enter into if it fails to
complete the exchange offer or determines that it would be more advantageous to the company to choose
the prepackaged reorganization plan. The announcement is credit negative because we would consider the
completion of either the exchange offer or the prepackaged bankruptcy plan to be a default.
If Colt completes the exchange offer, which would require 98% tender approval by noteholders, we will
likely view the transaction as a distressed exchange and append a limited default designation to Colt’s
probability of default rating. Alternatively, if the company enters into a prepackaged plan of bankruptcy,
which would require approval of two thirds of voting noteholders by par amount and a majority by number
of those voting, we would lower the company’s ratings to reflect the default.
As part of the proposed exchange offer, Colt would exchange its existing notes for an amount meaningfully
below par constituting a distressed exchange per our definition of a default. Colt’s existing $250 million
unsecured notes due in 2017 would be exchanged at a rate of $300 for every $1,000 of par amount, plus
accrued and unpaid interest. In addition, holders of existing notes that tender their notes and approve the
company’s proposed amendments and vote to accept the prepackaged plan will receive a consent payment
of $50 in principal amount of the proposed new notes per $1,000 principal amount of existing notes,
according to the company’s public filings.
We expect the proposed new notes to be secured by certain junior liens on substantially all of Colt’s assets.
We expect interest on the proposed notes to accrue at a rate of 10% per year in cash, compared with the
company’s existing 8.75% notes.
Concurrently with the launch of the exchange offer, Colt is soliciting holders of the existing notes to
approve a prepackaged plan bankruptcy plan as an alternative to the exchange offer. If the restructuring is
accomplished through the prepackaged plan, 100% of the existing notes, plus accrued and unpaid interest,
will be cancelled and holders of the existing notes will receive their pro rata share of the new notes.
The exchange offer and the consent solicitation will expire on 11 May 2015. Colt said that the exchange
offer and issuance of the new notes would reduce the overall amount of Colt’s debt, which is currently
slightly more than $350 million, reduce total cash interest payments and extend the company’s maturity
profile. Absent the proposed restructuring transactions, we believe the company will not be able to meet
these maturities and therefore, its likelihood of remaining a going concern would be uncertain.
Colt Defense’s Proposed Debt Restructuring Is Credit Negative
Last Tuesday, Colt Defense LLC (Caa3 negative) announced that it had launched an exchange offer for its
$250 million 8.75% senior notes due in 2017. The company also said that it had asked noteholders to
approve a prepackaged Chapter 11 reorganization plan that the company would enter into if it fails to
complete the exchange offer or determines that it would be more advantageous to the company to choose
the prepackaged reorganization plan. The announcement is credit negative because we would consider the
completion of either the exchange offer or the prepackaged bankruptcy plan to be a default.
If Colt completes the exchange offer, which would require 98% tender approval by noteholders, we will
likely view the transaction as a distressed exchange and append a limited default designation to Colt’s
probability of default rating. Alternatively, if the company enters into a prepackaged plan of bankruptcy,
which would require approval of two thirds of voting noteholders by par amount and a majority by number
of those voting, we would lower the company’s ratings to reflect the default.
As part of the proposed exchange offer, Colt would exchange its existing notes for an amount meaningfully
below par constituting a distressed exchange per our definition of a default. Colt’s existing $250 million
unsecured notes due in 2017 would be exchanged at a rate of $300 for every $1,000 of par amount, plus
accrued and unpaid interest. In addition, holders of existing notes that tender their notes and approve the
company’s proposed amendments and vote to accept the prepackaged plan will receive a consent payment
of $50 in principal amount of the proposed new notes per $1,000 principal amount of existing notes,
according to the company’s public filings.
We expect the proposed new notes to be secured by certain junior liens on substantially all of Colt’s assets.
We expect interest on the proposed notes to accrue at a rate of 10% per year in cash, compared with the
company’s existing 8.75% notes.
Concurrently with the launch of the exchange offer, Colt is soliciting holders of the existing notes to
approve a prepackaged plan bankruptcy plan as an alternative to the exchange offer. If the restructuring is
accomplished through the prepackaged plan, 100% of the existing notes, plus accrued and unpaid interest,
will be cancelled and holders of the existing notes will receive their pro rata share of the new notes.
The exchange offer and the consent solicitation will expire on 11 May 2015. Colt said that the exchange
offer and issuance of the new notes would reduce the overall amount of Colt’s debt, which is currently
slightly more than $350 million, reduce total cash interest payments and extend the company’s maturity
profile. Absent the proposed restructuring transactions, we believe the company will not be able to meet
these maturities and therefore, its likelihood of remaining a going concern would be uncertain.
Empresas ICA Will Gain Nearly $200 Million from New Toll-Road Joint Venture
Last Tuesday, Empresas ICA, S.A.B. de C.V. (ICA, B2 stable), a Mexican engineering and construction
company, announced that it had reached a MXN3 billion ($196 million) deal with Caisse De Dépôt Et
Placement Du Québec (CDPQ, unrated) that gives the Canadian investment management firm a 49% stake
in a new joint venture that will house ICA’s toll-road projects in a single entity. The joint venture would
include ICA’s four toll roads at the outset.
The transaction is credit positive for ICA, which will use most of the proceeds to continue deleveraging.
Since ICA has said it plans to generate MXN5 billion in cash proceeds from asset sales this year, the jointventure
agreement places the company well on its way to meet its target. The remaining MXN2 billion in
asset-sale proceeds would help ICA achieve a reported debt/EBITDA ratio of 7.4x-8.6x by the end of this
year, despite its macroeconomic and foreign-exchange disadvantages.
ICA’s leverage is highly sensitive to further depreciation of the weak Mexican peso. The company had about
MXN5.7 billion in cash at the end of 2014, when the peso traded at 14.8 to the US dollar. Since then, the
peso has weakened to 15.3, and about half of ICA’s debt is dollar-denominated, compared with just 30% of
its EBITDA.
Although the transaction is credit positive for ICA, we do not expect immediate upward ratings pressure,
mainly because a positive rating action would require that ICA maintain its consolidated Moody’s-adjusted
leverage below 6.5x. Using the company’s outlook for this year, which includes revenue growth of 10%-
12%, EBITDA margins of 14%-16% and assuming the full MXN5 billion asset sales and a foreign exchange
rate between MXN15-MXN16 per US dollar, we estimate that ICA’s adjusted gross leverage would be
6.6x-7.5x.
ICA’s concessions portfolio today contains six operational highways, five of which ICA fully owns and
controls. The joint venture with CDPQ contains four of them, which ICA will continue maintaining. We
consider the sale credit neutral for the debt of the toll-roads, including Consorcio del Mayab, S.A. de C.V.
(Mayab, Baa3/Aa3.mx stable) because the projects’ operation and maintenance will remain with ICA.
Moreover, since ICA will continue to consolidate these projects, the EBITDA that they generate will continue
to lower ICA’s leverage (see exhibit). Mayab holds the concession for the Kantunil (Merida) - Cancun road
and the extensions currently under construction for the Tintal - El Cedral and Tintal - Playa del Carmen
roads, a rapidly growing international tourist destination in the Mayan Riviera. In 2014, Mayab contributed
44% of the total adjusted EBITDA of the portfolio. The concession expires in December 2050.
Last Tuesday, Empresas ICA, S.A.B. de C.V. (ICA, B2 stable), a Mexican engineering and construction
company, announced that it had reached a MXN3 billion ($196 million) deal with Caisse De Dépôt Et
Placement Du Québec (CDPQ, unrated) that gives the Canadian investment management firm a 49% stake
in a new joint venture that will house ICA’s toll-road projects in a single entity. The joint venture would
include ICA’s four toll roads at the outset.
The transaction is credit positive for ICA, which will use most of the proceeds to continue deleveraging.
Since ICA has said it plans to generate MXN5 billion in cash proceeds from asset sales this year, the jointventure
agreement places the company well on its way to meet its target. The remaining MXN2 billion in
asset-sale proceeds would help ICA achieve a reported debt/EBITDA ratio of 7.4x-8.6x by the end of this
year, despite its macroeconomic and foreign-exchange disadvantages.
ICA’s leverage is highly sensitive to further depreciation of the weak Mexican peso. The company had about
MXN5.7 billion in cash at the end of 2014, when the peso traded at 14.8 to the US dollar. Since then, the
peso has weakened to 15.3, and about half of ICA’s debt is dollar-denominated, compared with just 30% of
its EBITDA.
Although the transaction is credit positive for ICA, we do not expect immediate upward ratings pressure,
mainly because a positive rating action would require that ICA maintain its consolidated Moody’s-adjusted
leverage below 6.5x. Using the company’s outlook for this year, which includes revenue growth of 10%-
12%, EBITDA margins of 14%-16% and assuming the full MXN5 billion asset sales and a foreign exchange
rate between MXN15-MXN16 per US dollar, we estimate that ICA’s adjusted gross leverage would be
6.6x-7.5x.
ICA’s concessions portfolio today contains six operational highways, five of which ICA fully owns and
controls. The joint venture with CDPQ contains four of them, which ICA will continue maintaining. We
consider the sale credit neutral for the debt of the toll-roads, including Consorcio del Mayab, S.A. de C.V.
(Mayab, Baa3/Aa3.mx stable) because the projects’ operation and maintenance will remain with ICA.
Moreover, since ICA will continue to consolidate these projects, the EBITDA that they generate will continue
to lower ICA’s leverage (see exhibit). Mayab holds the concession for the Kantunil (Merida) - Cancun road
and the extensions currently under construction for the Tintal - El Cedral and Tintal - Playa del Carmen
roads, a rapidly growing international tourist destination in the Mayan Riviera. In 2014, Mayab contributed
44% of the total adjusted EBITDA of the portfolio. The concession expires in December 2050.
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