(Bloomberg) -- Nyrstar NV received a $650 million cash injection from Trafigura Group Ltd., handing the zinc producer a temporary rescue after weeks of turmoil.
Trafigura, Nyrstar’s largest shareholder, will extend additional working capital to Nyrstar from Nov. 30 and make $220 million of financing available to cover the company in the next nine days. Analysts said the deal alleviates some of the short-term pressure on Nyrstar and makes a debt restructuring more likely in the future.
The bonds plunged in early trading after Trafigura said the money can’t be used to repay debt and investors braced for a restructuring. Trafigura secured the new lending against fixed assets of the zinc producer, potentially hurting the chance of bondholders recovering money in the event of a default.
“The liquidity situation seems very critical and this is indeed a lifeline,” said Philip Ngotho, an analyst at ABN Amro NV. “For the zinc market, this is good. But for bondholders and shareholders, it doesn’t really change the story."
Nyrstar, the world’s second-largest zinc producer, is battling a crisis because of fears that it’s running out of cash and won’t be able to make a bond payment due next year. The company said its liquidity position has worsened since the end of the third quarter, restricting the cash needed to fund its day-to-day operations.
Nyrstar’s bonds due in 2019 fell nearly 18 percent to 44.46, with the yield soaring to 144.7 percent. The shares rebounded, climbing 42 cents to 1.20 euros.
Trafigura said the $650 million facility is secured against fixed assets, inventories and shares in subsidiaries. The money can’t be used to repay or refinance Nyrstar’s bonds. The conditions imposed increases the likelihood of a bond restructuring, said Tony Lebon, a credit analyst at Oddo BHF in Paris.
“We have put the new financing in place as we strongly believe in the upside potential of the performance of Nyrstar’s assets in the years to come,” Trafigura said in a statement.
The new facility is more expensive than a smaller financing facility Nyrstar had with Trafigura, which will now be replaced. That $250 million facility, which was committed until the end of 2019, carried a cost of Libor plus 4 percent, according to Nyrstar’s most recent disclosures. In contrast, the main part of the new larger facility will cost Libor plus 5 percent.
Nyrstar announced plans to buy back its bonds in August, but so far it has redeemed just 10 million euros worth of the 2019 notes. The company drew scorn from bond investors on an investor call last month after it said had no plans to use short-term financing to pay off its long-term debt.
The new Trafigura facility incorporates a right for a period of two years to participate for up to 50 percent of any future financing or recapitalization arrangements entered into by Nyrstar.
Trafigura, the world’s second-largest metals trader after Glencore Plc, already has multiple ties to Nyrstar. It owns a 25 percent equity stake and appoints two members of the company’s board. Plus, Trafigura supplies Nyrstar with a third of its zinc raw materials and buys a fifth of its zinc metal production, according to a Nyrstar presentation.
(Updates with stock and bond prices.)
--With assistance from Luca Casiraghi.
To contact the reporters on this story: Mark Burton in London at mburton51@bloomberg.net;Jack Farchy in London at jfarchy@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Dylan Griffiths
©2018 Bloomberg L.P.
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