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LONDON, October 1. /TASS/. Moody's Interfax Rating Agency, majority-owned by Moody’s Investors Service (MIS), on Wednesday downgraded Russian debt-laden metals giant Mechel's national scale rating (NSR) to Caa2.ru from Ba3.ru, the agency said.
The outlook on the rating is negative, it said.
“Moody's Interfax's downgrade of the NSR of Mechel follows MIS's downgrade of the company's corporate family rating to Caa3 with a negative outlook,” Moody’s said.
MIS downgraded earlier Wednesday Mechel's corporate family rating (CFR) and probability of default rating (PDR) to Caa3 and Ca-PD, respectively from Caa1 and Caa1-PD, with a negative outlook on all ratings.
“The rating action is driven by an increased probability of a distressed exchange, which constitutes a debt default under Moody's definition, or alternatively by a payment default under bank facilities that might take place shortly,” Moody’s said in a press release.
“The deterioration of Mechel's financial profile has been exacerbated by the company's sizeable leverage and weak coal market environment, so the company has very limited prospects for meaningful recovery in 2015,” it said.
According to Denis Perevezentsev, a Moody's vice president and lead analyst for Mechel, “the downgrade is driven by the increased likelihood of Mechel restructuring debt in an effort to avoid bankruptcy, which might entail any combination of lowered interest rates, write-down of principal, extension of debt maturities, or conversion of part of debt into equity, all of which would imply an economic loss to the existing lenders and therefore falls under our definition of default”.
“The downgrade reflects our view that the government and state banks will not continue to provide funding to avoid a debt restructuring and a default of Mechel, although we remain confident that they will strive to achieve an orderly debt restructuring,” Perevezentsev added.
Mechel’s debt has reached $8 billion. The Russian government, creditor banks, investment consultants and Mechel representatives are considering options to restructure the metal giant’s debts. Mechel’s major creditors are Sberbank ($1.3 billion), Gazprombank ($2.3 billion) and VTB ($1.8 billion).
A financial market source said Wednesday that a lawsuit filed by Russia’s largest lender Sberbank against Mechel and its subsidiaries is worth 1.5 billion rubles ($38 million). Sberbank did not specify the amount of claims in reply to a TASS inquiry but confirmed that the bank had filed a lawsuit.
Sberbank has filed the lawsuit to the Moscow Arbitration Court against Mechel and its four subsidiaries, Mechel-Trans, Mechel-Service, the Chelyabinsk Metallurgical Integrated Works and the Bratsk Ferroalloy Plant. The lawsuit was registered on October 1. The date for the claim’s consideration has not yet been appointed.
VTB earlier filed a lawsuit to recover 3 billion rubles ($75.9 million) in overdue debt from Mechel.
The Mechel group incorporates coalmining divisions and producers of iron ore, steel, rolled stock, ferroalloys, high value added items, and thermal and electric power. It employs a total staff of 70,000. Its main shareholder Igor Zyuzin owns a 67.42% stake. Earlier, Mechel said that Zyuzin’s companies registered in Cyprus had reduced the amount of the company’s pledged shares to 27.22% from 41.57%