Wednesday, November 27, 2013

Flash Update: Short HY Case Study - Mirabela Nickel - MBNAU 8.75% 4/15/18

Mirabela Nickel Ltd is a Brazilian mining company with significant nickel and other related assets.  With nickel prices under pressure in recent years due to overproduction, the price of the stock (MRBAF) has fallen from $7 in 2008 to essentially $0 this year.  Capital proceeds reinvestment from the $375 MM debt issuance in 2011 did not stem the losses in 2012; in fact, they accelerated.


Nevertheless, with profitability and other financial ratios signaling red flags for the company throughout 2012 and with the equity trading at $0.50 as recently as February 2013, the bonds continued to trade near par.  In fact, Moody’s and S&P upgraded the credit rating of the company on December 13, 2012 and March 27, 2013, respectively.  On September 26, 2013 the company announced that it would miss its upcoming debt payment and the bond price dropped by 50% in one day (see chart below). 


Mirabela Nickel Ltd has seriously deteriorating fundamentals, in addition to nickel losing more than 20% of its value this year.  This mispricing of the bonds and the Q1-2013 upgrade was further evidence of the disconnect between financial assets and the ‘Main Street’ economy.  Please contact Tradex Global to further discuss our short high yield strategy.


Business Overview:                        Mirabela Nickel Ltd is a Brazilian mining company with significant nickel and other related assets.                                                                                        
Rating:                                               Moody’s:       Ca – “Highly speculative and are likely in, or very near, default with some prospect of recovery of principal and interest.”
S&P:                D – “Payment default on financial commitments.” 

Rating Agency: Moody’s
From:
To:
12/13/2012
Caa1
Caa1 (upgrade from Negative to Stable)
10/2/2013
Caa1
Caa3 (downgrade to Negative)
10/22/2013
Caa3
Ca (downgrade to Missed a Payment)

Rating Agency: S&P
From:
To:
3/27/2013
CCC+
B- (upgrade to Stable)
10/2/2013
B-
CCC+ (downgrade)
10/23/2013
CCC+
SD (downgrade to Selective Default)
11/18/13
SD
D (downgrade to Default)

Issue Size:                                         $375 MM

Use of Proceeds:                             “Repay/Refinance Debt” and “General Corporate Purpose”

Call Prices/Dates:                            4/15                104.3750
4/16                104.1875
4/17                100.0000

Financial Highlights:                       Income Statement:  ($millions, except per share data)
Period
12/31/2012
12/31/2011
12/31/2010
Revenue
343
303
210
Net Income
(452)
(51)
(48)
Earnings Per Share
(0.3)
(0.1)
(0.1)
Total Debt
450
402
263
Leverage (Total Debt/EBITDA)
12.1x
71.0x
8.7x
         
Recent Prices:                                  99.375            (2/12/13)
35.000            (11/26/13)

Yield to Worst:                                 43.5%

Company Outlook:                        The company’s  difficulties have mimicked the long secular decline in the price of nickel.  In addition to being concentrated within a single commodity, it also was dependent upon having only 2 prime customers.  When one of those customers (Votorantim Metals) announced it was closing its nickel smelting facilities, the price of Mirabela’s debt dropped 50% on September 24, 2013.  The Company has delisted from the Toronto stock exchange and entered in waiver and standstill arrangements with its major creditors.  

Source: Bloomberg and Tradex Global Advisors

* The above trade case study may not be an investment in an existing stand-alone investment entity.  The information for the trade case study was gathered from various sources.  No representation is being made that any vehicle managed by Tradex Global Advisors will or is likely to have this position in any of its Portfolios.  This trade case is neither a recommendation to buy nor a recommendation to sell the referenced security or securities.

Tradex Global Advisory Services, LLC
investorrelations@thetradexgroup.com 
203-863-1500
@Tradex_Global

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