Bank Trading Desk Offers €14M-€15M of KME Borrowing Base Facility in Low 90s

A bank’s trading desk is offering €14 million to €15 million of KME’s €395 million borrowing base facility in the low 90s, sources familiar with the matter told Reorg. Over the last week, the company’s 2023 bonds have fallen 4 points to 79/81, according to Solve Advisors.  Continue reading for our EMEA Core Credit team's update on KME's borrowing base facility, and request a trial for access to our analysis and reporting on hundreds of other stressed, distressed and performing credits.

On Feb. 2, KME’s creditors signed a one-year extension of its borrowing base facility. The facility was not extended by two years as permitted by its terms. In its second-quarter call in October 2020, KME’s management guided that the extension would be concluded in November 2020. In mid-December 2020, the company said it had received extension commitments from 51% of its lenders. At the start of January 2021, Reorg reported that the company had obtained the approval of over 70% of its lenders.

The delay in the extension of the facility was due to some lenders’ concern about the sharp rise in copper price, which translates into increased funding requirements for the company, sources said. The availability of committed trade funding is important as the KME’s volumes may otherwise be limited by its internal resources and the payment terms of suppliers that don't benefit from letters of credit.

The implications of rising copper prices on the group’s funding is something that Reorg previously highlighted, especially in the context of reduced working capital funding following the termination of the MKM borrowing base facility. For our analysis of funding and balance sheet, click HERE.

Reorg reported on March 4 that one of KME’s bank lenders was considering pursuing an independent special audit of the group's financials.

KME restated its 2019 earnings to “neutralize the ancillary trading activities to optimize the supplies and metal purchase conditions” following “a long discussion with auditors.” The company’s adjusted EBITDA was unaffected by the restatements. This is while KME’s parent company Intek postponed the approval of its 2020 report in order to complete the evaluation of some of its subsidiaries’ reports and business plans, which are currently being finalized.

According to the offering memorandum for KME’s 2023 notes, the company entered into a borrowing base facility agreement with Deutsche Bank as coordinating mandated lead arranger and UniCredit as mandated lead arranger as well as Commerzbank, Mediobanca, Banca Popolare di Milano Società Cooperative, Intesa Sanpaolo SpA, Banca Nazionale del Lavoro SpA, and Banca Monte dei Paschi di Siena SpA.

KME has also been conducting an M&A process for its special products division, which has attracted three bids so far, including two private equity firms and a “strategic investor.” The process was halted due to the Covid-19 pandemic but was restarted in May 2020. According to sources, the business is targeting a high single-digit multiple valuation based on 2020 EBITDA.

The company's capital structure is below:

--Luca Rossi