Greece-based producer of refrigeration units and glass containers Frigoglass, which is reliant on a Russian factory for almost all of its European production capacity, has seen its bonds pummelled by the conflict in Ukraine.
A downgrade from S&P to CCC (negative), from B– on Friday put further pressure on the company’s €260m 6.875% February 2025s. They were down to 58.50 on Monday morning having opened up February at 85.196.
The issuer has substantial exposure to Russia and Ukraine in terms of both revenues and production. During its financial year 2021, the company generated 16% of its revenues from the two countries combined.
Following a fire in its Romanian production unit last year, Frigoglass shifted the majority of its European production to Russia. The economic and financial sanctions imposed on Russia by the US, EU and UK, among other governments, has exacerbated supply chain issues affecting both Frigoglass' raw goods and end-product distribution and will severely impact revenues and free cashflow, according to S&P.
Frigoglass has no factories in Europe outside of Russia, and other plants are located in Asia and Africa, which will force up transportation costs if the company uses these units to offset falling European production.
A new Romanian facility will not be up and running until the final quarter of 2022.
Frigoglass also looks set to lose a key customer, in the form of Coca-Cola, which provides the bulk of the company’s revenues from Ukraine and Russia. Due to the war, Coca-Cola has announced it is suspending all activity in Russia.
Despite the very clear challenges, S&P does believe that Frigoglass will be able to pay the €8.94m coupon on its senior secured bond due in August. However, the agency also says that it sees a bigger risk to the borrower’s ability to pay its next coupon in February 2023.
“The expected cash burn in 1Q22 (–€18m) should be partially offset by the €10m insurance received during the quarter related to the fire incident in the Romanian plant,” wrote analysts at Spread Research on Monday morning. “We expect the overall cash burn to be at around €30m for FY22, leaving the overall cash balance at c.€50–€60m at YE22. We estimate that net leverage could pick up above 10.0x as of YE22.”
In the event of a default, Spread Research estimates that recovery prospects would be around 40%.
As well as a CCC rating from S&P, Frigoglass also carries a rating of Caa1 from Moody’s.
Refiled story: Fixes typo in seventh paragraph