Fitch Ratings has affirmed
The Recovery Rating on the senior unsecured debt is 'RR4'.
Interpipe's rating reflects Fitch's expectation that the company will be able to maintain sufficient liquidity headroom to pay its upcoming coupon in
The company has restarted operations and should be able to generate some operating cash flow in the coming quarters once restocking of inventories is complete. As its facilities have not been materially damaged it is better placed than some of its Ukrainian peers to increase capacity utilisation once the logistical bottlenecks are resolved and operational risks subside. All this should support sustainability of cash flow generation and, potentially, positive rating momentum.
Key Rating Drivers
Operations Back Online: All of Interpipe's key production facilities remain operational and have been restarted, after the initial shutdown in the immediate aftermath of the Russian invasion (February-April). Its facilities are running at lower levels of capacity utilisation due to disruption of logistical channels, while
Cash Flows Uncertain: Interpipe's business has generated robust earnings with shipped volumes since relaunching operations. However, working-capital requirements are high and mostly neutralise cash flow generation for now due to restocking of inventories and payment terms with suppliers and customers. Steel price moderation is expected to reduce working-capital build-up going into 4Q22. We expect free cash flow (FCF) to be positive in 2023.
At the same time, Interpipe's operations and critical infrastructure it relies on remain at high risk from the war through potential occupation or attacks, a prospect that will persist going into 2023.
Derivation Summary
Interpipe's Ukrainian peers include
Interpipe's assets are more concentrated than those of
Key Assumptions
Capacity utilisation above 50% for the rest of 2022 and 2023
Significant reduction of capex
No dividends
RECOVERY ANALYSIS ASSUMPTIONS
The recovery analysis assumes that Interpipe would be considered a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated.
Interpipe's GC EBITDA of
We use an enterprise value/EBITDA multiple of 3.0x to calculate a post-reorganisation valuation, reflecting the concentrated nature of key manufacturing assets in a territory with military conflict.
Taking into account our Country-Specific Treatment of Recovery Ratings Rating Criteria and after a deduction of 10% for administrative claims, our waterfall analysis generated a waterfall-generated recovery computation (WGRC) in the 'RR4' band, indicating a 'CCC-' instrument rating for the company's senior unsecured notes. The WGRC output percentage on current metrics and assumptions is 50%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
De-escalation of the war in
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Default of some kind appearing probable or near default, eg. decision not to pay coupon or inability to service debt
Material damage to key production assets by war
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Constrained but Sufficient Liquidity: Interpipe is maintaining in excess of
Issuer Profile
Interpipe is a Ukrainian producer of high value-added steel products, mostly pipes and railway wheels.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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