You're reading: Fitch downgrades Ukraine’s Interpipe to ‘RD’

Fitch Ratings on November 8, 2013, downgraded Ukraine-based Interpipe Limited's (Interpipe) Long-term Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'C'.

The senior secured rating of the company’s 2017 eurobonds is affirmed at ‘C’, Fitch said.

The bond’s Recovery Rating is ‘RR4’.

The downgrade of the Long-term IDR to ‘RD’ reflects an uncured
payment default following Interpipe’s failure to make a scheduled
principal debt repayment of $106 million on November 1, 2013. Interest
payments continue to be made.

Interpipe has initiated discussions with its lending group regarding a
further restructuring of principal debt repayments. Under the proposed
timeline for these talks an agreement is unlikely to be reached in the
current year.

Interpipe’s current liquidity constraints largely stem from the
operational impact of the non-renewal of the previous customs union
quota for Ukrainian pipe exports to Russia. Pipe sales to the customs
union have historically represented around 25-30% of Interpipe’s overall
pipe segment volumes. Fitch had previously expected Interpipe to
achieve EBITDAR in 2013 in the range of $340-360 million, but now
expects $260-290 million.

The U.S. Commerce Department is currently conducting an “anti-dumping”
investigation into the import of oil country tubular goods (OCTG) pipes
into the US market. Ukraine is one of nine countries being targeted by
the investigation. While Ukraine is not among the countries from which
the highest duties are being sought, the potential imposition of duties
from 2014 would nevertheless represent an additional hurdle for the
company in maintaining its operating performance.

Existing restructuring agreements provide for a re-tranching of
Interpipe’s bank debt. Its $200 million eurobonds have been extended to
August 2017, after the final maturity of the bank debt. All bank debt
holders and bondholders benefit from a general security package
including guarantees/sureties from key operating/trading subsidiaries,
and pledges of shares, major Property, Plant & Equipment (PPE)
items, intra-group receivables, and a portion of inventory and off-take
agreements. Lenders under the SACE credit facility benefit from various
first-ranking pledges including over the equipment and shares of Steel
One, which owns the Electric Arc Furnace (EAF). EAF noteholders have a
second-ranking pledge with other bank debt/bondholders having a
third-ranking pledge.

After a 12-month delay, minimum performance levels for the company’s
new EAF were achieved in the first half of 2013 with full output
expected from the start of 2014. The EAF resolves the company’s key
historical operational weakness – its lack of internal self-sufficiency
in steel billets. Once the EAF is in full production Interpipe will be
largely self-sufficient in billets, but will continue to externally
purchase around 200,000 tonnes of hot rolled coil for welded steel-pipe
production.

Fitch says that future developments that could lead to negative
rating action include bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedure, which could lead to a
downgrade of Long-term IDR to ‘D’ (Default).