Mechel settles covenant violations on $2 bln loan
MOSCOW. Oct 4 (Interfax) - Mechel Group may have violated the financial covenants of a $2 billion syndicated loan raised a year ago, but the coal and steel major has managed to settle this issue with the banks, several sources in the finance community told Interfax.
The documentation on the facility included the standard financial covenants, including a cap for the company's debt burden.
A source at one investment company heard from a client two to three weeks ago that Mechel had violated covenants on the loan facility. "I heard that Mechel will exceed the maximum debt to EBITDA ratio of 3 for the first half of the year," he said.
"We did in fact have the issue of discussing covenants, but it seems we have settled all issues. The credit agreement has a standard selection of financial covenants, and if the company breaks them it must either come with a waiver or propose some other option. Certain forecast covenants could potentially have been breached, therefore there was a discussion with the banks," a second source, who works for one of the banks that participated in the loan syndication.
An employee of the Russian subsidiary of a foreign bank that took part in the syndication said the loan terms stipulate how the margin on the loan will change depending on certain financial indicators, including the debt burden. The company sent a notice to the bank that for the first half of the year "there would probably be certain changes that could affect the cost of financing, and asked for a waiver for this," he said.
Mechel may scrape by without any serious sanctions from the banks, which are unlikely to bar the company from paying dividends on preferred shares, another source on the financial market told Interfax.
"Each bank will have its own view, its own risk assessment based on current volatility of prices and the economy. Each has a right to think one way or another, but I don't think that there will be a decision new to not pay dividends on preferred shares," the employee of the foreign bank subsidiary said.
Mechel Group raised the syndicated pre-export finance facility of $2 billion to refinance debt in September 2010. The loan was extended in two tranches: $800 million for three years and $1.2 billion for five years.
The proceeds raised under the $2 billion facility were used for refinancing Mechel Group's remaining debt obligations under the two syndicated pre-export facilities - the original $2 billion and the $1 billion facilities raised for acquisition of OJSC Yakutugol and Oriel Resources Ltd., respectively.
The Company appointed ING Bank N.V. and The Royal Bank of Scotland N.V. as Co-ordinators. In addition, BNP Paribas SA, Closed Joint Stock Company UniCredit Bank, Commerzbank Aktiengesellschaft, HSBC Bank plc, Natixis, OJSC Nordea Bank, Raiffeisen Zentralbank Oesterreich AG, Societe Generale, UniCredit Bank AG (formerly known as Bayerische Hypo- und Vereinsbank AG), VTB Bank (Austria) AG, VTB Bank (Deutschland) AG and VTB Bank (France) SA acted as Mandated Lead Arrangers and Morgan Stanley and Credit Suisse as Lenders for the facility.
