Nyrstar wins lifeline from Trafigura with US$650mil deal

LONDON: Nyrstar NV received a US$650mil cash injection from Trafigura Group Ltd, handing the zinc producer a temporary rescue after weeks of turmoil.

Trafigura, Nyrstar’s largest shareholder, will extend additional working capital to Nyrstar from Nov 30 and make US$220mil of financing available to cover the company in the next nine days. Analysts said the deal alleviates some of the short-term pressure on Nyrstar and makes a debt restructuring more likely in the future.

The bonds plunged in early trading after Trafigura said the money can’t be used to repay debt and investors braced for a restructuring. Trafigura secured the new lending against fixed assets of the zinc producer, potentially hurting the chance of bondholders recovering money in the event of a default.

“The liquidity situation seems very critical and this is indeed a lifeline,” said Philip Ngotho, an analyst at ABN Amro NV. “For the zinc market, this is good. But for bondholders and shareholders, it doesn’t really change the story.”

Nyrstar, the world’s second-largest zinc producer, is battling a crisis because of fears that it’s running out of cash and won’t be able to make a bond payment due next year. The company said its liquidity position has worsened since the end of the third quarter, restricting the cash needed to fund its day-today operations.

Nyrstar’s bonds due in 2019 fell nearly 18% to 44.46, with the yield soaring to 144.7%. The

� shares rebounded, climbing 42% to 1.20.

Trafigura said the US$650mil facility is secured against fixed assets, inventories and shares in subsidiaries. The money can’t be used to repay or refinance Nyrstar’s bonds. The conditions imposed increases the likelihood of a bond restructuring, said Tony Lebon, a credit analyst at Oddo BHF in Paris.

“We have put the new financing in place as we strongly believe in the upside potential of the performance of Nyrstar’s assets in the years to come,” Trafigura said in a statement.

The new facility is more expensive than a smaller financing facility Nyrstar had with Trafigura, which will now be replaced. That US$250mil facility, which was committed until the end of 2019, carried a cost of Libor plus 4%, according to Nyrstar’s most recent disclosures. In contrast, the main part of the new larger facility will cost Libor plus 5%.

Nyrstar announced plans to buy back its bonds in August, but so far it has redeemed just 10mil euros worth of the 2019 notes. The company drew scorn from bond investors on an investor call last month after it said had no plans to use short-term financing to pay off its long-term debt.

The new Trafigura facility incorporates a right for a period of two years to participate for up to 50% of any future financing or recapitalization arrangements entered into by Nyrstar.

Trafigura, the world’s second-largest metals trader after Glencore Plc, already has multiple ties to Nyrstar. It owns a 25% equity stake and appoints two members of the company’s board. Plus, Trafigura supplies Nyrstar with a third of its zinc raw materials and buys a fifth of its zinc metal production, according to a Nyrstar presentation.