Moody's downgrades Concern Stirol

Moody's Investors Service said it downgraded the corporate family rating of OJSC Concern Stirol and the loan participation notes issued by UkrChem Capital BV to Caa1 from B3.

The direction of the company' rating review, which began on Aug. 11, 2006, was changed to uncertain from possible downgrade.

The agency said the downgrade and rating review were prompted by the company's long, drawn-out negotiations with bondholders to resolve several covenant violations. In August 2006, Concern Stirol released audited 2005 financial results that indicated the company was in breach of a number of covenants under both a $10 million bank loan and the $125 million loan participation notes, giving the bank and noteholders the right to accelerate the repayment. In September, the bank agreed to a temporary waiver of covenants for the loan and Stirol initiated negotiations with noteholders with the aim to receive a waiver of the breached covenants. As of March 9, the process is still pending resolution.

Moody's noted that Stirol's liquid assets at June 30 exceeded the amount of its financial debt, and the company paid interest under the notes on Feb. 19.

The uncertain direction of the review relates to the possible conclusions of the negotiations. The agency said a successful restructuring of the covenants could lead to an upgrade given the underlying profitability of the company, but a decision by noteholders to accelerate the note repayment would likely result in a further downgrade.

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