Russia-Based European Bearing Corporation Assigned 'B+/ruA+' Ratings; Outlook Stable
December 13, 2011 Standard & Poor's
Primary Credit Analyst: Robert E Richards, Frankfurt, (49) 69-33-999-200; firstname.lastname@example.org
Secondary Contact: Abigail Klimovich, London, (44) 20-7176-3554; email@example.com
Additional Contact: Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com
• European Bearing Corporation (EBC) is Russia's largest producer of bearings.
• Notwithstanding high market shares, EBC faces increasing competition and longer-term demand for bearings in Russia depends on the viability and international competitiveness of EBC's customers.
• EBC's current group and borrowing structure is complex and constrains the group's growth and strategic ambitions.
• We are assigning our 'B+' corporate credit rating and 'ruA+' Russia national scale rating to EBC.
• The stable outlook reflects our view that profitable growth will support debt repayments and limited capital expenditures within loan covenants.
FRANKFURT (Standard & Poor's) Dec. 12, 2011--Standard & Poor's Ratings Services said today that it had assigned its 'B+' long-term corporate credit and 'ruA+' Russia national scale ratings to Russian OJSC European Bearing Corporation (EBC). The outlook is stable.
Our ratings on EBC reflect our view of EBC's business risk profile as "weak" and financial risk profile as "aggressive", as our criteria define these terms.
EBC is Russia's largest producer of bearings for railroad rolling stock, aviation and defense, industrial, and automotive applications. Notwithstanding high market shares in key sectors, EBC faces increasing competition from both leading global and low-cost Chinese producers of bearings. The longer-term demand for bearings in Russia depends on the viability and international competitiveness of EBC's customers.
EBC's current group and borrowing structure, while effectively protecting creditors, is complex and constrains the group's growth and strategic ambitions. ECB might refinance these facilities by issuing ruble bonds, terms of which are not yet known. We see EBC's liquidity cushion as "less than adequate", because of the scheduled amortization payments, or, if EBC refinances with bonds, because of near- or medium-term bullet maturities or puts.
The stable outlook reflects our view that, as EBC continues to rebound from the sharp 2009 recessionary downturn, profitable growth will support debt repayments and limited capital expenditures within covenants under a loan from the European Bank for Reconstruction and Development (EBRD; AAA/Stable A-1+), or the likely more flexible covenants of a ruble bond. Adjusted debt-to-EBITDA coverage maintained at 2.5x or below and funds from operations to debt remaining at 20%-30% are consistent with the current ratings if EBC's markets and competitiveness continue to improve steadily.
If EBC's trading performance and working-capital management--and hence, cash flow adequacy--are robust, we could raise the ratings. If EBC refinances the EBRD facility, an upgrade would also be contingent on a good spread of debt maturities and a commitment to moderate financial policies broadly in line with the current loan agreement.
Alternatively, if future financing does not include sufficient backup funding to cover the bullet maturities and potential puts of bonds, if creditors do not have a clear claim against the cash flows and assets of all important units of the group, or if EBC's market positions and competitiveness deteriorate, we could lower the ratings.
Company — European Bearing Corporation
Full nameEuropean Bearing Corporation