Nyrstar : Focus Emission

Nyrstar’s subsidiary Nyrstar Netherlands (Holdings) B.V. intends to issue approximately EUR 350m of senior unsecured bonds maturing in 2024. The bonds will be guaranteed, like the existing 2019 straight bond and 2022 CB 2020 put, by Nyrstar, as Parent Guarantor, and certain subsidiaries of the company (see Nyrstar’s debt structure chart in appendix 6). These three bonds will therefore be structurally senior compared to the unguaranteed existing 2018 CB. As at end-December 2016, the issuer and guarantors represented 98.8% of the group’s revenue, 83.9% of its underlying EBITDA and 73.6% of total assets. The issuer intends to use the net proceeds to refinance amounts outstanding under the 2018 convertible bonds (EUR 120m) and to pay down (but not cancel) EUR 225m of indebtedness under existing revolving facility agreements, namely: i/ EUR 95m i.e. 100% of the amount drawn under the Trafigura working capital facility and ii/ EUR 130m out of EUR 330m drawn under the SCTF.In connection with the foregoing, Nyrstar has launched a voluntary tender offer to purchase for cash any and all of the outstanding 4.25% convertible bonds due 2018 (outstanding amount of EUR 120m), conditional on, among other conditions, the closing of the new 2024 straight bond issue. The repurchase price is 99% of par. The tender offer is a voluntary tender offer and depends on holders of the outstanding 2018 CBs voluntarily tendering their bonds, Nyrstar may receive tenders for less than the aggregate principal amount of outstanding 2018 CBs. However, we understand that the 2024 bond issue is not dependent on the success of the tender offer.This refinancing is net debt-neutral but will improve the debt schedule and the liquidity position: in case of 100% take-up in the CB tender offer, the average debt maturity would be 4.0 years (vs 2.5 years as at end-2016) and the available liquidity would be EUR 614m (vs EUR 390m) – see appendices 7 to 9 for the debt schedule and liquidity position before and after the refinancing.On a relative-value basis, peer bonds with a work-out date close to 2024 trade at an average YTW of c. 6.8% in our sample but the standard deviation is quite high. Besides, there is currently a very limited number of peer bonds priced at such a long maturity on the market. Lastly, we believe that for B- names and an adjusted leverage of c. 7.3x as at end-December 2016 (though this is expected to decrease thanks to current macroeconomic factors), it is more a matter of idiosyncratic risk than a relative-value story. The price talk of 7% looks facially attractive but some uncertainties remain on the name (sustainability of the currently favourable macroeconomic factors in the short term and delivery of the Port Pirie project in the medium term). We therefore think that there is limited potential on this bond at an issuance yield of 7% in the medium term. The bond could yet perform well on the secondary market in the short term in the light of the scarcity of decent yields in the single B space on the euro-denominated bonds market. The investor appetite could be huge…Besides, we do not recommend tendering the 2018 CB to the offer. Following the 2024 straight bond issue (we think that it is a done deal), the company would, in our view, have enough liquidity to repay this CB (see our prospective liquidity analysis in appendix 13). With its current attractive yield of c. 5%, this CB now deserves a Buy & Hold rating in our view (vs Neutral previously). Lastly, we maintain our Neutral recommendations on Nyrstar 2019 straight bond (YTM of c. 5%) and 2022 CB 2020 put (YTP of c. 2%).>