Moody's Investors Service has downgraded Vedanta Resources Ltd.'s corporate family rating from 'Caa2' to 'Caa3', as it considers recent debt restructuring to be a distressed exchange.
The rating agency also downgraded the senior unsecured bonds of Vedanta Resources and those issued by its subsidiaries to 'Ca' from 'Caa3' on Tuesday.
Moody's views the debt restructuring as default avoidance and assesses that the creditors have incurred an economic loss with respect to the original promise, according to Kaustubh Chaubal, senior vice president at Moody's.
"We consider the transaction to be a distressed exchange under our criteria, which underpins our downgrade of VRL's ratings," he said.
Vedanta Resources received support from bondholders last week for its proposal to restructure four series of bonds. Bondholders also provided their consent to amend certain financial covenants regarding leverage and debt cap limits.
The overwhelming consent to the revised terms is said to remove immediate pressure on Vedanta Resources to repay the debt obligation.
The London-based parent of Vedanta Ltd. will fund the approximately $780 million upfront cash payment from a recently obtained loan of $1.25 billion. The balance of the loan proceeds will be applied, in part, towards addressing some of the company's loan repayments.
The company's ratings reflect its unsustainable capital structure, characterised by high financial leverage at the holding company and its perennially weak liquidity amid a period of continued large negative free cash flow, according to Moody's.
It said the company would still face material liquidity issues over the upcoming 24 months and that default risk remains high.
The negative outlook reflects the rating agency's view that the recovery prospects for its debt instruments could decrease further. Vedanta Resources' liquidity persistently remains weak, with management fees and dividends from operating subsidiaries insufficient to meet its debt maturities and interest servicing needs, Moody's said.
It is unlikely to upgrade the company's ratings or revise its rating outlook to stable prior to the company improving its liquidity profile, it said.
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