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S&P: Russia's JFC Group Cut To 'CCC+/ruBB' On Deteriorating Liquidity Position; Outlook Negative

December 19, 2008 "Standard & Poor's"
MOSCOW (Standard & Poor's) Dec. 18, 2008--Standard & Poor's Ratings Services said today that it has lowered its long-term corporate credit rating to 'CCC+ from 'B-' and Russia national scale rating to 'ruBB' from 'ruBBB-' on Russian fruit importer and distributor JFC Group Co. Ltd. (CJSC). The outlook is negative.

"The downgrade reflects JFC's deteriorating liquidity position. The company faces a possible covenant breach on its three-year $150 million syndicated loan, for which it does not have enough back-up liquidity sources to satisfy requests for repayment by creditors," said Standard & Poor's credit analyst Anton Geyze.

JFC has already breached covenants on the syndicated loan, but managed to negotiate a waiver from syndicate arrangers. The company nevertheless had minimal headroom under one of its covenants for the 12 months ended Sept. 30, 2008. Additional waivers are likely to increase JFC's cost of funding and make interest payments increasingly difficult for the company.

"The negative outlook reflects JFC's risks of noncompliance with covenants under its syndicated loan facility, which might trigger a default if the company obtains no waiver or if covenant breach is followed by a distressed exchange offer," said Mr. Geyze.

We factor into the ratings JFC's immature corporate governance and risk management, and limited transparency and visibility.

The ratings also factor in no further exercise of opportunistic financial policy. The current ratings reflect the existing scope of consolidation and the corporate structure, and do not incorporate any changes in scope of consolidation.

We could revise the outlook to stable if JFC increases headroom under its covenants and makes it adequate. We will also monitor whether the group will be able to increase its liquidity cushion in the form of undrawn amounts under its committed lines.

Covenant breach could lead to a negative rating action as well as evaporation of support from banks that currently allow JFC to roll over its significant short-term debt.
Company — JFC Group
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    JFC Group
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