InfraBuild bonds hit as Greensill collapse prompts warning from Fitch

LONDON, March 15 (Reuters) - Bonds issued by Australian steelmaker InfraBuild dropped on Monday after ratings agency Fitch placed it on watch for a downgrade due to uncertainty caused by the collapse of Greensill Capital, the main funder of its parent company GFG Alliance.

GFG Alliance, a holding company for the assets of mining magnate Sanjeev Gupta, was the biggest recipient of financing from Greensill, a British financing company, which filed for insolvency last week.

Fitch has put both the “BB-” ratings on InfraBuild -- formerly known as Liberty OneSteel -- and the “BB” rating on its $325 million senior secured notes due October 2024 on ratings watch negative (RWN).

This means that both the debt and company could face a downgrade in the near future, following a similar warning from Moody’s last week.

“The RWN reflects increasing uncertainty from the funding issues faced by GFG Alliance,” Fitch analysts said in a note. “Problems at GFG Alliance could have a contagion effect on its various companies, including the Whyalla steelworks and InfraBuild, and it may increase pressure on InfraBuild’s liquidity and disrupt the timely supply of billets and structural steel.”

The contagion may arise from a number of related-party transactions under various agreements, the analysts added.

InfraBuild and GFG Alliance did not immediately respond to a request for comment.

Gupta said on Friday the conglomerate was in talks with Greensill’s administrators on a so-called standstill agreement which would pause its debt payments to Greensill for an agreed period of time.

The supply chain finance firm filed for insolvency last Monday after losing insurance coverage for its debt repackaging business and said in its court filing that GFG Alliance had started to default on its debts.

InfraBuild’s bonds maturing in October 2024 fell 75 cents on the dollar to a cash price of 98.625 on the Fitch move, translating to a yield of 12.488%.

The bonds were trading at 108.5 at the start of the month, or a yield of 8.268%.

The debt is secured against assets which has limited the fallout. InfraBuild’s loan documents and collateral provide adequate protection for creditors, the Fitch analysts said.

Fitch believes that InfraBuild has adequate liquidity of 250 million Australian dollars, which consists of cash and committed undrawn balances under a AUD250 million asset-based lending facility as of end-February 2021.

The facility matures in October 2022. In addition, InfraBuild does not have any arrangements or credit facilities related to Greensill. (Reporting by Abhinav Ramnarayan; editing by Carmel Crimmins)