S&P: Suncoke Energy Inc.'s Senior Secured Revolving Credit Facility Rating Lowered To 'B'
At the same time, we lowered the issue-level rating on the company's senior unsecured notes to 'CCC+' from 'B' and revised the recovery rating to '6' from '3', which indicates our expectation of negligible (0% to 10%) recovery in the event of a payment default.
As of June 30, 2016 SXC had $20 million outstanding under the facility, with $100 million of additional borrowing availability after accounting for letters of credit. Other debt consisted of $44.6 million of 7.625% senior unsecured notes due 2019.
We lowered the recovery rating on the company's revolving credit facility and senior unsecured debt to '3' and '6' respectively following a review of the company's recovery profile. We assess recovery prospects on the basis of a reorganization value of approximately $700 million (for Suncoke Energy L. P. (SXCP) and Suncoke Energy Inc. (SXC)), reflecting emergence EBITDA of $140 million and a 5x multiple. The reorganization value attributable to SXC is approximately $33 million after 5% administrative expenses. Our simulated default scenario contemplates a severe decline in the steel end markets, which causes the company to lose its key contracts. Our scenario also contemplates a continued decline in the coal logistics business. Facing declining revenues and margin compression, the company finds itself funding operating losses and debt service with available cash. Eventually, the company's liquidity and capital resources become strained to the point where it cannot continue to operate absent a bankruptcy filing. All debt amounts include six months of prepetition accrued interest. Simulated default assumptions
Year of default: 2020Emergence EBITDA: $140 millionValuation multiple: 5xGross enterprise value (EV): $700 millionSimplified waterfall
Obligor EV split: SXC (5%, $35 million)/SXCP (70%, $490 million)/Foreign subsidiaries (4% 28 million)/SXCP Raven Assets (21% $147 million)Net EV at SXC: $56.7 million (after administrative expenses including residual value from foreign subs)Priority claims at SXC: $100 million (SXC revolver at default)--Senior secured recovery: '3' (50%-70%; lower end of the range)Senior secured rating: 'B'Remaining unpledged collateral for unsecured claims: $3 millionSenior unsecured claims at SXC: $46 million--Senior unsecured notes recovery: '6' (0%-10%)Senior unsecured notes issue rating: 'CCC+'