Moody's assigns a (P)B2 rating to ISD Finance plc's proposed USD 350-500 million guaranteed senior unsecured notes; stable outlook
July 10, 2007
Moscow, July 09, 2007 -- Moody's Investors Service has today assigned a
(P)B2 senior unsecured rating to the loan participation notes issued by
ISD Finance plc., guaranteed by Industrial Union of Donbass (ISD) and by
the operating companies Alchevsk Iron & Steel Works ("AMK") and
Dniprovsky Iron & Steel Works ("DMKD").
For the rating rationale of ISD's corporate family rating please refer to
the Press Release published on July, 2, 2007.
In its assessment of the company's capital structure for the purpose of
assessing the loss given default, Moody's considers existing secured
debt to rank ahead of the loan participation notes. The USD 350-500
million Notes, guaranteed by ISD and operating companies AMK and DMKD,
are structurally and contractually subordinated to the existing secured
indebtedness of USD 1,253 million, which is secured by property,
equipment and fixed assets.
After the refinancing of the existing indebtedness, 34% of total debt
will be still ranked ahead of the Notes, therefore the assigned rating is
one notch below the corporate family rating of B1
The (P)B2 rating on the USD 350-500 million unsecured notes due in 2012
reflects both the overall probability of default of the group, to which
Moody's assigned a probability-of-default rating (PDR) of B1, and a
loss-given default (LGD) assessment of LGD 5 or 73.63%.
The loan participation notes are subject to various restrictions and
financial covenants, including a maximum debt/EBITDA ratio of 3.0x and
limitations regarding additional indebtedness and dividend payments are
The proceeds of the notes will be applied to finance different corporate
needs including the retirement of USD 150 mm of existing CLNs, the
repayment of USD 200 mm of a bridge loan and financing CAPEX at AMK and
The assigned ratings assume that there will be no material variations to
the draft legal documentation reviewed by Moody's and assume that these
agreements are legally valid, binding, and enforceable.
Industrial Union of Donbass ("ISD") is one of the leaders in the steel
sector of CIS and is the largest in the Ukraine with an annual production
of 9.7 million tonnes of liquid steel in 2006.
The company's production assets are located in four sites in the Ukraine,
Hungary and Poland. ISD is focused on export markets which account for
83% of 2006 sales, which in turn amounted to USD 4.85 billion.
Company — ISD