One bank lender of KME is considering pursuing an independent special audit of the German copper products group’s financials, sources close to the matter told Reorg. Due to concerns over the high copper price, two of the company’s bank lenders have pushed for a one-year
extension of its €395 million borrowing base facility, and not a two-year extension as initially envisaged.
Continue reading for our EMEA Core Credit team's reporting that one of KME's bank lenders is considering an independent special audit, and request a trial for access to our analysis and reporting on hundreds of other stressed, distressed and performing credits.
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.
Negotiations about the M&A process for the company’s special products division are proceeding slowly due to some disagreements on valuation, specifically with regard to the treatment of the borrowing base facility when calculating the equity value, sources said. The process has attracted three bids so far, including two private equity firms and a “strategic investor.” It was halted due to the Covid-19 pandemic but restarted in May 2020. According to sources, the business is targeting a high single-digit multiple valuation based on 2020 EBITDA.
Some lenders are nervous about the sharp
rise in copper prices to levels not seen since 2011, which translates into increased funding requirements for the company, sources said. The availability of committed trade funding is important as the group’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. Copper prices
closed at $9,266 per tonne on March 3. When asked about additional liquidity requirements due to higher copper prices on the group’s third-quarter call, management
said that there were no special requirements and the group could cope with its factoring, working capital facilities, optimization of stock level, and cash on balance sheet.
For Reorg’s analysis of funding and balance sheet, click HERE.
KME is also working to finalize a loan guaranteed by the Italian government through its credit export agency SACE. Among the lenders of the SACE facility will be Italy’s state lender Cassa Depositi e Prestiti, or CDP, as reported. The loan should amount to about €100 million, sources said.
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.
The company's capital structure is below:
KME SE
|
09/30/2020 |
|
EBITDA Multiple |
(EUR in Millions) |
Amount |
Price |
Mkt. Val. |
Maturity |
Rate |
Yield |
Book |
Market |
|
€395M Borrowing Base Facility L/C Drawdown 1 |
392.7 |
|
392.7 |
Feb-2021 |
|
|
|
Total Borrowing Base Facility |
392.7 |
|
392.7 |
|
4.7x |
4.7x |
€395M Borrowing Base Facility |
- |
|
- |
Feb-2021 |
|
|
|
Total Drawn Borrowing Base |
- |
|
- |
|
4.7x |
4.7x |
€300M Bond due 2023 |
300.0 |
80.6 |
241.8 |
Feb-01-2023 |
6.750% |
18.700% |
|
€25M MKM Asset Base Facility 2 |
25.0 |
|
25.0 |
2024 |
|
|
|
€4M Amortizing Loan 3 |
4.0 |
|
4.0 |
|
|
|
|
Total Secured Debt |
329.0 |
|
270.8 |
|
8.6x |
7.9x |
Other Debt |
61.1 |
|
61.1 |
|
|
|
|
Total Other Debt |
61.1 |
|
61.1 |
|
9.4x |
8.7x |
Total Debt |
782.8 |
|
724.6 |
|
9.4x |
8.7x |
Less: Cash and Equivalents |
(67.1) |
|
(67.1) |
|
Less: Other Net Debt Adjustments |
(429.1) |
|
(429.1) |
|
Net Debt |
286.6 |
|
228.4 |
|
3.4x |
2.7x |
Operating Metrics |
LTM Reported EBITDA |
83.6 |
|
LTM Reorg EBITDA |
37.2 |
|
|
Liquidity |
RCF Commitments |
425.0 |
|
Less: Letters of Credit |
(392.7) |
|
Plus: Cash and Equivalents |
67.1 |
|
Total Liquidity |
99.4 |
|
Credit Metrics |
Gross Leverage |
9.4x |
|
Net Leverage |
3.4x |
|
Notes:
a) The company has €450M of factoring facilities, €395M of borrowing base facility of which €392.7M was used for letters of credit and a €30 million of shareholder working capital line. Availability to draw is subject to the borrowing base. RCF commitments assumes the full €395M being available as well as the €30M shareholder line. Factoring is not included. b) Reorg EBITDA refers to cash adjusted EBITDA after restructuring costs and others. c) Other net debt adjustments cover letters of credit and factoring assets.
1. The credit facility was utilized by letter of credit for €392.7M as payment to metal suppliers. The facility was upsized by €20 million after the termination of the MKM facility.
2. Secured against machinery and equipment separate from the bond security package. Matures in third quarter of 2024. Quarterly amortization starts in the third quarter of 2022.
3. Secured against machinery and equipment separate from the bond security package. |
--Luca Rossi