Moody’s assigned a provisional rating of Baa3 to Dell Inc.’s proposed senior secured notes.
The debt is being issued by Diamond 1 Finance Corporation (“Finco 1”) and co-issuer Diamond 2 Finance Corporation (“Finco 2”), which are entities that will merge into Dell International LLC (a debt issuing subsidiary of Dell Inc.) and EMC Corporation (“EMC”), respectively, upon closing of the Dell EMC merger.
Post closing of the transaction, Dell International and EMC will assume all of Finco 1’s and Finco 2’s obligations under these notes.
The Dell – EMC merger is expected to close by the end of October 2016.
Moody’s assigned a credit rating of Baa3 to a total of USD 5bn senior unsecured notes offered by Kraft Heinz Foods Company.
The bonds were issued in separate 10-year and 30-year tranches.
Proceeds from the offerings would be used primarily to call a portion of the company’s $8 billion 9% preferred stock, callable 6 June, 2016. The rating outlook is stable
Source: Moody’s Rating Report
State-owned Mexican petroleum company Petróleos Mexicanos’ (Pemex) CEO Jose Antonio Anaya and Mexico’s finance minister Luis Videgaray will travel to New York this week to assure investors about the company’s financial health following a $4.2bn liquidity injection.
Juan Pablo Newman, the oil company’s chief financial officer, would also be accompanying the two on the roadshow.
Pemex has faced steep budget cuts in the last two years as crude oil prices have plunged globally and its output in 2015 has declined by over a third to an average of about 2.2m barrels per day (bpd) from 3.4 million bpd in 2004.
The new management installed in February 2016, including the CEO, is reviewing strategies to cut costs whilst continuing with future investments.
Previously, Moody’s downgraded Pemex by two notches to Baa3 on worsening credit metrics amid falling oil prices.
Ratings agency S&P lowered its outlook on China’s credit rating of ‘AA-‘ to negative from stable, citing the Mainland’s attempts to overhaul its economy from an investment-led and export-oriented one toward domestic-led growth was proceeding at a slower pace than expected.
The move follows that by Moody’s, which lowered its outlook on China to negative earlier in March 2016 for its credit rating of Aa3. Fitch Ratings rated China as ‘A+’ with a stable outlook.
As part of its rationale on the lower outlook on China, S&P outlined the following reasons:
- gradual increase in economic & financial risk to the government’s creditworthiness
- weakening of sovereign and corporate credit metrics
- increased reliance on credit to push the sluggish economy
Ratings agency Moody’s downgraded Mexican state-owned company Petroleos Mexicanos’ (PEMEX) by two notches from Baa1 to Baa3 with a negative outlook. The downgrade was attributed to lower oil prices, poor financial results and the possibility of the Mexican government providing financial support to the firm, all of which has negatively impacted Pemex.
Previously, Moody’s had downgraded Pemex to Baa1 from A3 in November 2015 and in January 2016, put it on review for a second downgrade.
On the earnings front, Pemex reported 13 consecutive quarterly losses since 2012 and generated losses amounting to $32bn across the FY 2015 period. Debt on the company’s books at the end of December 2015 was c.$8bn.
Further, the company announced in February 2016 that it would trim its 2016 budget by $5.8bn (MXP 100bn) to mitigate losses caused by falling crude oil prices.
Separately, Moody’s also lowered its outlook on the sovereign debt of Mexico (rated A3) amid subdued economic growth in the country. Oil, a key source of revenue for the country, has fallen sharply on lower demand globally, leading to the Finance Ministry of Mexico announcing budget cuts.
Moody’s expects the Mexican government to step in should Pemex face further financial difficulty.
Moody’s downgraded Brazil-based mining firm Samarco Mineracao’s CFR to Caa2 from Caa1, with a negative outlook on the company. Ratings on the following debt instruments were also downgraded (outlook: negative):
- $1bn Senior Unsecured Notes due 2022: from Caa1 to Caa2
- $700m Senior Unsecured Notes due 2022: from Caa1 to Caa2
- $500m Senior Unsecured Notes due 2022: from Caa1 to Caa2
Moody’s attributed the downgrade to the continued uncertainty about Samarco’s ability to resume mining operations in Brazil, concerns over liquidity pressures and risk arising from compensation payments the company has to make in light of its dam burst accident.
Samarco’s mining operations have been suspended since November 2015 when a dam rupture at one of its mines caused a massive flood in the Minas Gerais district of Brazil.
In the absence of mining operations, revenue generation has been significantly affected and the company may not have sufficient funds to meet its financial obligations and operating expenses in 2016.
Further, with compensation claims arising from the incident, Samarco could face significant cash outflows in 2016, further pressuring the company’s liquidity.
During March 2016, the miner and its shareholders (BHP Billiton and Vale S.A.) signed a compensation agreement with Brazilian federal authorities which outlined the financial terms Samarco would have to comply with until 2030 in relation to the accident.
As per the agreement, Samarco would have to make payments amounting to a total of BRL 4.4bn from 2016 to 2018, and further annual payments between BRL 0.8 – 1.6bn from 2019 to 2021. Payments to be made from 2022 until 2030 would be defined by the authorities based on the targets set by the agreement.
Source: Moodys’ Rating Report (16 March 2016)
Mining giant BHP Billiton’s credit rating was downgraded by rating agency Moody’s to A3 from A1 amid a prolonged commodity price slump. The move follows a rating downgrade conducted earlier by S&P.
The downgrade adds to its disappointing first-half results where the company recorded losses of $5.6bn, mainly on write-downs of its U.S energy assets. The dismal earnings also led to the suspension of its dividend policy.
Price of iron ore, the commodity which accounts for a large chunk of BHP’s earnings, was down more than 70% since its peak in 2011 of nearly $192 a metric ton.
The firm has struggled with the outcome of a pending claims settlement case related to its investment in Samarco Mineracao, a Brazilian mining firm, formed by 50:50 JV with Vale S.A. Samarco faced a lawsuit in Brazil related to its dam bursting incident in which state authorities seek a compensation of upto BRL 20bn ($5bn). However, a statement released by JV partner Vale states that an agreement with the Brazilian authorities could allow the companies to pay BRL 9.6bn in compensation by 2030.
Mining firm Anglo American’s subsidiary Anglo American Capital plc plans to re-purchase upto $1.3bn of its bonds from investors as part of its turnaround plan aimed at reducing debt and divesting certain assets.
The company published a tender offer on 18 February 2016 to purchase debt which ends on 16 March 2016.
The plan to puchase debt comes on the news of Moodys’ downgrading the company’s credit ratings to Ba3 from Baa3 on 15 February 2016, ahead of its FY 2015 results announced a day later. S&P also downgraded the company’s credit rating to BB from BBB-.
Key takeaways from the FY 2015 earnings release:
- Revenue of $23bn vs. $30.9bn a year ago
- Net loss before tax of $5.5bn vs. loss of $259m a year ago
- EBIT at $2.2bn vs. $4.9bn a year ago
- EBITDA at $4.8bn vs. $7.8bn a year ago
Targets for 2016:
- $3-4bn of asset disposals targeted
- pro-forma net debt to decline below $10bn by 2016 and to touch $6bn in the medium-term
- Net Leverage to be less than 2.5x in the medium-term
- Suspension of dividend payments
- Capex for 2016 of less than $3bn
Bonds to be purchased include EUR, GBP and USD -denominated bonds with the following maturities:
- 4.375% bonds due December 2016
- 1.75% bonds due November 2017
- 1.75% bonds due May 2018
- 6.875% bonds due April 2018
- 2.5% bonds due September 2018
- 2.625% USD bonds due 2017
Sources: Company Press Releases, PR Newswire, Bloomberg & FT