S&P Global Ratings downgraded French steel tube maker Vallourec on high debt levels and new refinancing plans.
The tubemaker was downgraded to a 'CCC-' rating with negative outlook, from its previous 'CCC+" classification, the ratings agency said in a statement Sept. 2.
S&P Global Ratings noted that weak market conditions hindered Vallourec from issuing EUR800 million ($947.4 million) of equity earlier this year, putting increasing pressure on the company's liquidity.
This week the tubemaker announced it is considering a broader financial restructuring to address its sizable gross debt (exceeding EUR3 billion) and upcoming maturities (EUR1.7 billion due February 2021), the agency said.
"We continue to view Vallourec's capital structure as unsustainable amid adverse industry conditions, primarily triggered by drastic cuts in oil and gas producers' capital expenditure budgets and overall weaker industrial production related to the outbreak of COVID-19," S&P Global Ratings said.
"The negative outlook indicates that we could lower the ratings should the company announce a distressed exchange offer or decide to miss an interest payment," it said.
Vallourec announced Sept. 1 in a statement posted on its website that it was seeking the consent of its bondholders and bank creditors to consider wider negotiations on a new capital structure "in accordance with the terms of the relevant revolving credit agreements." The company is a major supplier of OCTG and other tubular products, with an international presence.
"We could likely consider any future agreement between the parties resulting in a haircut to the current debt level and extending the maturity profile of the debt without suitable compensation as a distressed exchange offer," S&P Global Ratings said.
A distressed exchange has been defined as occurring when a distressed company offers creditors new or restructured debt, or a new package of securities, cash or assets, that amounts to a diminished financial obligation relative to the original obligation. This kind of offer recognizes, in effect, that a company may not meet all its obligations as originally promised.
S&P Global Ratings is part of the S&P Global group, alongside S&P Global Platts.
