Bonds issued by commodity trader Noble Group have plunged, mirroring an ugly decline in its shares, on concerns about the company’s ability to manage its $3.3bn net debt load and secure liquidity from banks.
The price of Noble’s recently issued 2022 US dollar bond has tanked from over 97 cents on the dollar to under 54 cents by Friday morning, following Tuesday’s warning from the company that it is heading for a $130m first-quarter loss. The bonds were among the most actively traded in Europe on Friday, according to data from MarketAxess.
Noble blamed its loss on challenging market conditions and that it said were dislocations in the coal market.
“There is risk that losses may continue due to the inability to effectively hedge the price risk in its coal business, and still negative operating cashflows,” said Mervin Song, an analyst at DBS Bank. “Furthermore, there are questions surrounding Noble’s ability to secure sufficient liquidity from its key banks.”
Alongside its results on Thursday, Noble revealed that it had extended by one month the $2bn secured borrowing base facility (BBF), which it is now trying to refinance.
After that, Noble’s next big maturity, according to analysts, is a $379m bond due in March 2018 followed by a $1.14bn unsecured term loan note due in May.
Standard Chartered said:
The Noble bonds have sold off significantly, which seems like an overreaction since the liquidity position appears adequate. We estimate pro forma cash at $678m, and the company had $900mn of committed unutilised facilities as of March 2017. While there is risk of non-extension of the BBF, the self-liquidating nature of the facility means that the liquidity position should not be affected.
However, we do not see positive catalysts near-term barring an improvement in earnings or a strategic partner investing in the company. Also, the lack of prior warning on the results and management’s poor responses to some of the questions on the earnings call may lead some investors to adopt a ‘sell now, ask questions later’ approach.