Moody's rates Kremikovtzi bond Caa1

Moody's Investors Service said it assigned Caa1 corporate family ratings to Bulgaria-based Kremikovtzi AD and a Caa1 rating to its seven-year secured guaranteed bond, issued at Bulgaria Steel Finance BV.

The outlook is stable.

The agency said that following its privatization in 1999, Kremikovtzi ran into operational and financial difficulties, accumulated significant legacy liabilities and had liquidity problems. In 2005, Kremikovtzi was acquired by Global Steel Holding Ltd. Group, which indirectly controls 71% of the company, and the Bulgarian government retains its 25.3% stake. The new controlling shareholder is implementing a turn-around program planned for 2006-2009 and sold €325 million of bonds to fund the program and some of the accumulated liabilities.

Moody's said the ratings reflect the Baa3 foreign-currency rating of the Republic of Bulgaria, the low default dependence between the company and the country, the low level of support provided by Bulgaria, the fundamental weakness of the business and the fact that Kremikovtzi's ability to service its obligations depends on the timely implementation and success of the turn-around program. The ratings also reflect the high risk profile of the financing structure, with limited shareholder contribution available at the initial stage resulting in a high level of debt; significant execution and operational risks and a possible need to draw additional funding in an event of market downturn or delays with implementation; and the high capital requirements that Kremikovtzi faces in the next 5 years.

The ratings also take into account Kremikovtzi's improving domestic market share, expected improvement in cost efficiency and profitability resulting from the turn-around program, better management under the new ownership and involvement of the Bulgarian state as a stakeholder in Kremikovtzi providing some support in resolving legacy issues and preparing the viability plan to be approved by the European Union, the agency said.

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