Updated Financial Model
German copper products group KME has obtained the approval of over 70% of its lenders to extend its borrowing base facility as at the end of 2020, sources told Reorg. In mid-December, the company said
it had received borrowing base facility extension commitments from 51% of its lenders. The initial expectation of management at the time of the second quarter call was that the extension would be finalized in November 2020. Continue reading for the EMEA Core Credit by Reorg team's update on KME, and request a trial for access to more coverage of stressed, distressed and high-yield credits in the region.
According to KME’s offering memorandum for its 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.
At the same time, the company is working to finalize a loan guaranteed by the Italian government through its credit export agency SACE. Among the lenders of the SACE loan there will be Italy’s state lender Cassa Depositi e Prestiti, or CDP, sources said.
KME’s 2023 €300 million bonds are currently quoted at 83-84, sources said.
The company’s capital structure is below:
In terms of the group’s current liquidity position, management said
in the most recent call with investors that the situation had not changed materially since the end of the third quarter. When asked about additional liquidity requirements due to higher copper prices, management said that there are no special requirements and the group can cope with its factoring, working capital facilities, optimization of stock level and cash on balance sheet.
Management noted that the group had good trading in October and November 2020. Volumes in the copper division were returning back to a normal level from October. Performance in the fourth quarter of 2020 is at budget and a similar trend is expected in the first quarter of 2021. Regarding the special division, management noted that the business has posted a stable performance with upside potential in 2021.
The group said that it had utilized around €15 million to €20 million of recourse factoring and around €160 million of non-recourse factoring. It guided that it is working to have a net financial position similar to September at year end.
KME posted a third quarter revenue fall of 21.4% year over year and 20.2% quarter over quarter. The group’s net added value, a measure that strips off the raw material cost, saw 13.8% and 11.7% declines respectively. Adjusted EBITDA fell 19.9% year over year and 19.5% quarter over quarter to €16 million as the top line fell and margin on net added value contracted.
Free cash flow in the quarter was negative €22.5 million as payables declined €19 million after the termination of the MKM borrowing base facility. Additionally, the payments on financial assets consumed €12.6 million in cash. “Proceeds from other financial liabilities,” presumably representing the incremental MKM tranche B as disclosed in the second quarter report, brought in €27.5 million cash with the overall cash position of the group falling €7.4 million in the quarter.
Reorg’s analysis of the company’s earnings can be found HERE