S&P - Why we downgraded PT Bumi Resources to 'CC'

SINGAPORE - Standard & Poor's has explained in further detail today why it recently lowered the rating on Indonesian coal producer PT Bumi Resources Tbk. to 'CC' from 'CCC'. S&P said the downgrade followed a debt-for-equity and asset exchange agreement between Bumi and a large creditor. “We consider the agreement to be a de-facto default under our criteria.”

The ratings agency said it assesseswhetherf an exchange is characterised as distressed or not if, in the absence of the exchange, there is a realistic probability of a conventional default on the exchanged instrument in the near to medium term. "We believe there was a realistic possibility of a conventional default in the next six to 12 months as lower cash flows compressed Bumi's interest servicing capabilities," said S&P analyst, Xavier Jean.

"Bumi also faced weak liquidity and high refinancing risks, including repayment of US$300 million in bank loans in December 2013, about US$20 million in average monthly amortisation on other bank loans, and a US$375 million convertible bond maturing in August 2014.

“We expect to lower all ratings on Bumi to 'SD' (selective default) upon completion of the transaction for a short period. We will then reassess Bumi's creditworthiness and assign ratings to reflect the company's new capital structure and debt-servicing ability.” "We expect the ratings to improve from the current 'CC' level because of Bumi's lower debt burden and slightly improved interest servicing capacity from the transaction."   www.standardandpoors.com (ATI).