KEY FINANCING TEST
Commodity trader in talks with banks on new borrowing base
would again feature a cash draw down component,” said Noble.
Short-term financing is the lifeline of trading houses which operate on thin margins and rely on such funding to support their working capital needs.
For Noble, obtaining such financing has become challenging due to its weak operating performance.
“The June refinancing was paramount to the company,” said Andrew DeVries, an analyst at CreditSights, adding a bank would normally be comfortable loaning US$600 million to US$700 million on a secured basis because Noble’s trading book and inventory are worth US$4.6 billion.
“However, the recent drop in the stock and bonds combined with a Moody’s downgrade was enough to scare a lot of banks away from further Noble business, regardless of collateral value,” said New York-based DeVries.
Noble has lurched from one crisis to another since it hit the spotlight in February 2015 when Iceberg Research accused it of overstating its commodity contracts by billions of dollars as it battled a commodities downturn.
That sparked a share price collapse, writedowns and debt downgrades to junk status.
Noble’s shares slumped by as much as 57 per cent to the lowest in 15 years and its bonds due 2022 lost half of their value. Reuters
Noble shares have slumped 57 per cent to the lowest in 15 years and its bonds due 2022 have lost half their value.