Higher risk in refinancing with a A$250m asset-based lending facility in InfraBuild Australia makes Fitch cut its ratings. It marks the company’s second downgrade in just three months. The outlook is quite bad. The rating agency downgraded its long-term issuer default rating from B to B-. Then the secured rating from BB- plunged to B+.
JP Morgan was the sole mandated lead bookrunner and arranger when the company launched 2020 syndication. It was InfraBuild’s A$250m three-year ABL facility. The company purchases margins interest of 225bp over BBSY for credit ratings of BA3/BB- or lower. Then if the ratings are higher they pay an interest margin for 200bp.
According to Fitch, there are many effects from the downgrade of InfraBuild. Fitch is positive that InfraBuild’s links to parent GFG Alliance and governance risk affected the company’s financial flexibility. Thus it gives impact to their access to traditional capital markets. The chairman of GFG Alliance, Sanjeev Gupta, is under scrutiny due to the collapse of finance company, Greensill Capital. Greensill Capital provides financing for some of Gupta’s companies.
The rating agency has strongly warned the company about the concentrated ownership risk. Plus the warning covers transactions with related parties and affiliates, as well as company status with two independent board members. The number is out of seven. Fitch understood that the company has evaluated its options on refinancing. That was why it contributed to the Fitch’s delay on refinancing the ABL.
Although the rating agency believed that InfraBuild could afford cash to repay the ABL and cash to collateralise its contingent liabilities, the use of cash will burden its liquidity profile and financial stability. The company’s liquidity buffers might only be sufficient until June 2023. However, they are still able to replenish cash and refinance the ABL facility.
