S&P: Ratings On EMECO Holdings Ltd. Lowered To 'CC' Due To Proposed Recapitalization; Outlook Negative
At the same time, we lowered the senior secured debt issue rating to 'CC', from 'CCC'. The recovery rating on the senior secured notes remains unchanged at '3'.
"We have lowered the ratings on Emeco because the company has announced that it has signed a binding restructuring support agreement with certain financiers. The agreement establishes a framework for the proposed recapitalization of Emeco, which would include a debt-for-equity swap for the senior secured noteholders," said S&P Global Ratings credit analyst Sam Heffernan.
In accordance with our criteria for distressed debt exchange (see "Rating Implications Of Exchange Offers And Similar Restructurings, Update," published May 12, 2009, on RatingsDirect), we believe that this proposed transaction would result in the noteholders receiving less than the promise of the original securities. In the absence of this offer, there was a realistic possibility of a conventional default on the senior secured notes.
The proposed transaction will merge Emeco with equipment rental companies Orionstone and Andy's Earthmover's. The debt-for–equity swap will compromise and extinguish the claims of noteholders and Orionstone's and Andy's creditors in exchange for the companies' share of 54% of ordinary shares in the combined group. In addition, the group will assume A$473 million of senior secured notes with a five-year maturity and interest rate of 9.25%. As part of the transaction, Emeco expects to refinance its current asset-backed loan facility with an expiry date in December 2017.
Mr. Heffernan added: "The negative outlook reflects the likelihood that we will lower the rating to 'SD' (selective default) following the completion of a creditors' scheme of arrangement in December 2016 and Emeco's proposed transaction with its lenders."