Commodity Online
MUMBAI: Standard & Poor's Ratings Services said on Wednesday that it had kept its 'BB' issue rating on the GBP3.67 billion senior secured debt of Tata Steel U.K. Ltd. (TSUK; B+/Negative/B) on CreditWatch, where it was placed with negative implications on February. 5, 2009.
"We have kept the issue rating on CreditWatch pending a review of our recovery analysis on TSUK. This review will factor in the impact on our simulated default scenario, and in turn our estimate of the stressed enterprise value at default, following: (1) a recent agreement with banks to amend the covenants on the company's senior secured debt; (2) the significant deterioration in the operating environment; and (3) the measures that TSUK undertakes to manage the currently challenging environment," said Standard & Poor's credit analyst Yasmin Wirjawan.
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S&P said the agreement with the banks is in line with their expectation. The issue rating is two notches above the corporate credit rating because of the recovery rating of '1', which indicates our expectation of very high (90%-100%) recovery in the event of a payment default.
The agreement with lenders has resulted in the testing of earnings-related covenants to be largely suspended until March 2010. Testing will resume with significantly higher flexibility compared with the original covenants. Under the agreement, parent Tata Steel Ltd. (BB-/Negative/--) will inject GBP425 million into TSUK in a phased manner. TSUK will use about GBP200 million to make prepayments on its debt.
TSUK is the intermediate parent holding company of U.K.-based steel manufacturer Corus Group PLC and is a wholly owned subsidiary of Tata Steel.
S&P expects to resolve the CreditWatch on the senior secured debt rating within the next 30 days after reviewing the recovery rating on TSUK in view of the recent agreement with lenders, significant deterioration in operating conditions, and the measures that TSUK has undertaken to manage the currently challenging environment
