Moody's Cuts Central European Distribution (CEDC) CFR to Ca-PD, Outlook Negative
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Moody's Investors Service has today downgraded the corporate family rating (CFR) of Central European Distribution Corporation (Nasdaq: CEDC) to Ca and its probability of default rating (PDR) to Ca-PD. Concurrently, Moody's has downgraded to Ca from Caa2 the rating on the senior secured notes due in 2016 issued by CEDC Finance Corporation International. The outlook on the ratings is negative.
RATINGS RATIONALE
"Today's rating action follows the company's announcement on 25 February 2013 of its offer to existing bondholders to exchange part of their stakes into common equity and part into a reduced amount of new notes bearing a lower coupon, and Moody's view that the debt exchange offer -- if it is approved by bondholders -- will represent a distressed exchange", says Paolo Leschiutta, a Moody's Vice President - Senior Credit Officer and lead analyst for CEDC. "The offer follows CEDC's failure to secure adequate financing to repay its $310 million convertible notes due 15 March 2013 and the unsustainable capital structure given the currently depressed profitability of the company", continued Mr. Leschiutta.
The PDR of Ca-PD reflects Moody's expectation that there will be a transaction, either in line with the proposed offer or under other conditions, which is going to represent a distressed exchange. The CFR of Ca reflects the relatively low recovery rate for notes holders that will accept the offer and the fact that these represent most of the liability structure of the company.
The company's proposed offer, which expires on 22 March, includes the following: (1) holders of the $380 million 9.125% senior secured notes due 2016 will receive $508.21 principal amount of 6.5% new senior secured notes due 2020 and 16.52 new shares of CEDC common stock in exchange for each $1,000 principal amount of their notes; (2) holders of the ca. €430 million 8.875% senior secured notes due 2016 will receive $682.37 principal amount of 6.5% senior secured notes due 2020 and 22.18 new shares of CEDC in exchange for each EUR1,000 principal amount of their notes; and (3) holders of the $310 million 3% convertible senior notes due 2013 will receive 8.86 new shares of CEDC common stock for each $1,000 principal amount of the notes.
The negative outlook recognises that further downward pressure could be exerted on the ratings in the coming weeks if the company failed to reach an agreement with its bondholders or if other form of debt restructuring takes place resulting in a greater loss for bondholders or in a default.
WHAT COULD CHANGE THE RATING UP/DOWN
Downward pressure on the rating could develop if (1) the convertible notes were not re-paid on time or (2) CEDC were to pursue a debt restructuring through a bankruptcy procedure. Ratings might be repositioned upwards once the company completes its restructuring process and manages to reduce its debt burden.
Headquartered in Warsaw, Poland, CEDC is one of the largest vodka producers in the world, with annual sales of around 33.2 million nine-litre cases, mainly in Russia and Poland. Following investments in Russia over the past two years and the consolidation since February 2011 of Whitehall Group, an importer and distributor of premium spirits and wine, CEDC generated net revenues of around $830 million during financial year-end December 2011.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was the Global Alcoholic Beverage Rating Methodology published in September 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
RATINGS RATIONALE
"Today's rating action follows the company's announcement on 25 February 2013 of its offer to existing bondholders to exchange part of their stakes into common equity and part into a reduced amount of new notes bearing a lower coupon, and Moody's view that the debt exchange offer -- if it is approved by bondholders -- will represent a distressed exchange", says Paolo Leschiutta, a Moody's Vice President - Senior Credit Officer and lead analyst for CEDC. "The offer follows CEDC's failure to secure adequate financing to repay its $310 million convertible notes due 15 March 2013 and the unsustainable capital structure given the currently depressed profitability of the company", continued Mr. Leschiutta.
The PDR of Ca-PD reflects Moody's expectation that there will be a transaction, either in line with the proposed offer or under other conditions, which is going to represent a distressed exchange. The CFR of Ca reflects the relatively low recovery rate for notes holders that will accept the offer and the fact that these represent most of the liability structure of the company.
The company's proposed offer, which expires on 22 March, includes the following: (1) holders of the $380 million 9.125% senior secured notes due 2016 will receive $508.21 principal amount of 6.5% new senior secured notes due 2020 and 16.52 new shares of CEDC common stock in exchange for each $1,000 principal amount of their notes; (2) holders of the ca. €430 million 8.875% senior secured notes due 2016 will receive $682.37 principal amount of 6.5% senior secured notes due 2020 and 22.18 new shares of CEDC in exchange for each EUR1,000 principal amount of their notes; and (3) holders of the $310 million 3% convertible senior notes due 2013 will receive 8.86 new shares of CEDC common stock for each $1,000 principal amount of the notes.
The negative outlook recognises that further downward pressure could be exerted on the ratings in the coming weeks if the company failed to reach an agreement with its bondholders or if other form of debt restructuring takes place resulting in a greater loss for bondholders or in a default.
WHAT COULD CHANGE THE RATING UP/DOWN
Downward pressure on the rating could develop if (1) the convertible notes were not re-paid on time or (2) CEDC were to pursue a debt restructuring through a bankruptcy procedure. Ratings might be repositioned upwards once the company completes its restructuring process and manages to reduce its debt burden.
Headquartered in Warsaw, Poland, CEDC is one of the largest vodka producers in the world, with annual sales of around 33.2 million nine-litre cases, mainly in Russia and Poland. Following investments in Russia over the past two years and the consolidation since February 2011 of Whitehall Group, an importer and distributor of premium spirits and wine, CEDC generated net revenues of around $830 million during financial year-end December 2011.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was the Global Alcoholic Beverage Rating Methodology published in September 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
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