3 de agosto de 2016 / 16:05 / hace un año

OHL bonds fall further after Moody's downgrade

LONDON, Aug 3 (IFR) - Obrascon Huarte Lain’s bonds fell for the third day in a row after Moody’s hit the Spanish construction firm with a one-notch rating downgrade on Wednesday.

OHL’s bonds came under pressure on Monday after reporting poor first-half results, before taking another leg down on Tuesday as a planned share buyback spooked debt investors.

Moody’s cut the company’s credit rating one notch to B3, while switching from a stable to negative outlook, citing material negative free cash flow and rising recourse debt levels.

OHL’s 230m 7.625% 2020 bond fell five points to a cash price bid of 73 on Wednesday, according to Tradeweb, equating to a yield of nearly 19%. Its 400m 4.75% 2022 bonds meanwhile were bid at just 60.50, having fallen more than two points over the course of the day.

The company’s share price has been hammered even harder - despite the announcement of the up-to 45m share buy back - with the stock down 24% intraday at 4.45pm.

The downgrade is the second from Moody’s this year, having cut the rating one notch to B2 with a stable outlook in March. This last downgrade triggered a margin step-up on OHL’s 250m syndicated loan.

“They’re adjusting their business strategy to focus on lower margin projects, which is forcing them to cut their debt,” Matthias Hellstern, a managing director at Moody‘s, told IFR.

“But despite pulling all the levers they have, leverage has gone up not down.”

The ratings agency pegs OHL’s leverage at 13.9x, which it defines as gross recourse debt to recourse Ebitda. The company aims to reduce its recourse leverage to below 2.0x, although it calculates it differently to Moody‘s.

“We view it as nearly 14x levered because we only include cash Ebitda from the recourse business in our calculation, whereas the company’s consolidated Ebitda figure includes payments due from concessions in many years’ time,” said Hellstern.

“We also exclude dividends from non-recourse subsidiaries, as we believe much of this is a non-cash payment that will be netted against an intercompany loan.”

OHL’s accounting practices at its Mexican unit allow it to book upfront “guaranteed” government payments due later on under its toll road contracts. Subsidiary OHL Concesiones made a 1bn intercompany to parent company OHL SA at the end of 2014, which IFR reported last year raised concerns around the company’s transparency.

In contrast to Moody‘s, Fitch rates OHL three notches higher at BB-. It affirmed this rating with a stable outlook in November. (Reporting by Robert Smith, editing by Alex Chambers)

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