OREANDA-NEWS. Fitch Ratings has downgraded China-based Winsway Enterprises Holdings Limited's (Winsway) Issuer Default Rating (IDR) to 'D' from 'RD'. No Outlook has been assigned.

The downgrade follows Winsway's announcement on 11 April 2016 that it has filed for U.S bankruptcy protection under Chapter 15 of Title 11 of the U.S bankruptcy code. The bankruptcy filing will facilitate a debt restructuring arrangement with holders of Winsway's USD350m outstanding senior notes. The company missed several related interest payments and the principle repayment, which was due on 8 April 2016.

Meanwhile, Winsway's senior unsecured rating has been affirmed at 'C', with a Recovery Rating of 'RR6'.

Fitch will re-evaluate Winsway's rating upon the completion of the proposed debt restructuring schemes.


Debt Restructuring: Winsway has arranged a meeting with its existing bondholders to restructure its outstanding senior notes totalling USD350m on 3 May 2016. Under the proposed debt restructuring plan, the outstanding senior notes and interest payments will be redeemed with the following: cash of USD50m less consent fees and other fees payable, 18.75% of the total issued shares of Winsway on a fully diluted basis upon completion of the debt restructuring, and a contingent value rights clause that will see the bondholders receive an additional USD10m should Winsway's cash profit before tax exceed USD100m in any single year in the next five years.

The outcome of the debt restructuring will be heavily dependent on Winsway executing a planned rights issue to raise USD50m for the cash portion of the debt restructuring plan.

Weak Cash Generation Continues: Winsway recorded CNY3.4bn in revenue in 1H15, up 4.6% a year earlier. Gross margin improved to 3.4% in 1H15 from almost zero in 1H14. The company continued to post EBITDA losses in 1H15 while net debt increased to CNY3.9bn from CNY3.1bn in 1H14. Fitch expects the likelihood of a recovery in Winsway's operations to be low given the over-capacity in the domestic coal industry and low coal prices.


Fitch's key assumptions within our rating case for the issuer include:
- Winsway's cash flow generation does not improve
- Winsway's sources of liquidity do not improve


Positive: Future developments that may, individually or collectively, lead to positive rating actions include:
- Fitch will re-examine the company's credit profile if it successfully restructures its debt