Standard & Poor's: Bumi Resources rating lowered to 'SD' on missed principal repayment

(SINGAPORE (Standard & Poor's) Aug. 13, 2014)--Standard & Poor's Ratings Services today lowered its long-term corporate credit rating on Indonesia-based thermal coal producer PT Bumi Resources Tbk. (Bumi) to 'SD' from 'CC'. We also placed our 'CCC-' long-term issue rating on senior secured notes that the company guarantees on CreditWatch with negative implications. In addition, we lowered our ASEAN regional scale rating on Bumi to 'SD' from 'axCC'.

The downgrade on Bumi comes after it did not repay the US$375 million principal on convertible bonds that matured Aug. 5, 2014; a five-day grace period for repayment ended on Aug. 12, 2014. We understand that Bumi is negotiating with bondholders to restructure the bonds.

Under our criteria, we consider payments (including the principal repayment on maturity) on an obligation that are not made on the date due or within the grace period to be in default. The missed principal repayment on the convertible bonds is in "selective default" because we have not been informed of Bumi's failure to service its other debt obligations.

We placed our issue rating on Bumi's senior secured bonds on CreditWatch with negative implications because Bumi's inability to restructure the convertible bonds could result in the trustee for the bonds calling it a default. This will trigger an event of default for all Bumi's rated bonds because of a cross-default clause between Bumi's other debt obligations and its rated bonds. In such a scenario, we will lower the rating on Bumi and its bonds to 'D'.

"We believe the coming interest payments on Bumi's rated bonds are manageable because these interest payments are small compared with the large principal repayments due over the next six months," said Standard & Poor's credit analyst Vishal Kulkarni. The interest on rated bonds is due only in October and November 2014. We believe Bumi will continue to face large refinancing risks on its debt.

"We plan to raise our corporate credit rating on Bumi when the company completes restructuring the convertible bonds and we believe Bumi's other debt obligations are not in default. If Bumi defaults on its other debts, we will lower our rating on Bumi to 'D'," Mr. Kulkarni said. (ends)