S&P downgrades Ferrexpo rating to CCC, upgrades rating of MHP to B-

Report of S&P takes a note that Ferrexpo PLC has maturities of about USD 200M in each of the coming two years, and insufficient liquidity sources (cash and operating cash flow) to meet these loan maturities. In addition recent bankruptcy of related local bank Finance&Credit is mentioned (where USD 175M of Ferrexpo cash holdings has been frozen).

The downgrade follows the deterioration in Ferrexpo's liquidity position since latest review of S&P in July 2015. This deterioration is explained by the company's inability to exercise the option to draw additional USD 150M under its pre-export facility. It is also due to a reduction in Ferrexpo's cash balance after a maturity of about USD 50M and a dividend of USD 19M. Outlook is negative, which reflects the risk of default by mid-2016 unless Ferrexpo reaches an agreement with the banks to roll over the debt. This is currently reflected by a yield to maturity of more than 25% on Ferrexpo's bonds.

Under base-case scenario, S&P projects that Ferrexpo's adjusted EBITDA will be USD 230-250M in 2015 and USD 150-200M in 2016. These assumptions, together with capital expenditure of USD 50-60M, translate into positive free operating cash flow of USD 60-70M. In S&P view, unless Ferrexpo reaches an agreement with the banks, which matches its cash flows with a more comfortable maturity table, the company could run out of funds by mid-2016.

Apart from decrease for Ferrexpo S&P raised local and foreign currency long-term corporate credit ratings of MHP S.A. to B- from CCC- (outlook is stable). Upgrade of MHP follows general upgrade of Ukraine on Oct. 19, 2015. The ratings on MHP are constrained by those on Ukraine because MHP is considered to be heavily exposed to country risk in Ukraine. S&P anticipates that MHP's debt-to-EBITDA ratio will likely be around 2x-3x over the next two years, additional risk factor - large planned investments, which put pressure on free cash flow generation.

Also recently UAI agro-holding was upgraded to B- on Ukraine upgrade; Outlook is Stable.

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