Friday 17 June 2016 by Company updates

Barminco is managing its refinancing risk through progressive bond buybacks


Barminco has made a further repurchase of its 2018 bonds

Barminco has announced that it has purchased USD23.1m of its bonds via two privately negotiated transactions. The price Barminco paid to buy back the bonds was not disclosed, but we expect it was at a discount to par given current trading levels.

The repurchase has been fully funded out of cash and the associated bonds will be cancelled. Barminco has separately repurchased and cancelled an aggregate of USD152.7m of bonds over the past two years. USD309.2m of the bonds remain outstanding following the buy back.

Barminco is rated B- (stable outlook) from S&P and B2 (negative outlook) from Moody’s. Barminco has progressively made bond repurchases at below par value which we believe in aggregate has been credit positive, by reducing the ultimate amount of debt which needs to be refinanced at maturity.

However, under S&P methodology, the rating agency viewed the aggregate of the buybacks to date as a de facto restructuring. Accordingly, S&P treated the cumulative buybacks as a default under its rating criteria. We think this was counterintuitive, given that the buybacks are improving the refinancing risk profile of the bonds.  

On 15 June, S&P lowered Barminco’s corporate credit rating to a selective default 'SD' from 'B-'. At the same time, it lowered the rating on the company's senior unsecured notes to 'D' from 'B-'. However, the following day S&P raised the corporate credit rating on the company back to 'B-' from 'SD', and the issue level rating on the senior unsecured bonds to 'B-' from 'D'. Please note that the S&P temporary downgrade did not have an adverse impact on the credit or pricing of the Barminco bonds, and was purely a technical downgrade in line with their methodology.

Barminco has been able to manage the tough trading conditions in the mining services market by rolling over expiring contracts and winning new contracts to replace lost ones. The company's earnings have been relatively stable over the past few years compared to other mining services companies, which have experienced material falls in earnings.

Barminco is indicatively offered at double digit yields to maturity reflecting the relatively weak sector exposure (mining services) and high leverage in the business. Liquidity in this line has been relatively thin, so please contact your FIIG representative for supply and pricing levels.

A link to the most recent results article is available here.External link - opens in a new window

Please contact your FIIG representative for further details on the Barminco US dollar bond. Available to wholesale investors only with a minimum face value of USD10,000. Pricing is indicative only and subject to change.