Rating Action Commentary
ֳ Affirms Interpipe at 'CCC-'
Mon 03 Feb, 2025 - 12:54 PM ET
ֳ - London - 03 Feb 2025: ֳ has affirmed Interpipe Holdings Plc's Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'CCC-'. The Recovery Rating on the senior unsecured debt is 'RR4'.
Interpipe's rating reflects the high risk of damage or disruption at its five facilities in central Ukraine, which generate substantially all its earnings and cash flow, due to their proximity to the conflict zone.
ֳ expects the company to be able to maintain robust liquidity in the near term to fund operations and service its financial obligations in 2025. We see limited visibility at present as to whether the Central Bank of Ukraine (CBU) may allow the repayment of its bonds in 2026 with funds that are subject to exchange controls or whether Interpipe will be able to facilitate a refinancing.
Key Rating Drivers
Resilient Operations Despite War: Interpipe increased sales volumes to around 650kt in 2024 and we expect production volumes to reach around 85% of pre-war levels in 2025. In October 2024 one workshop at Nikotube had six weeks of downtime after a transformer was damaged by shelling; the pipe production facility is located across the river from the frontline. Despite the need to procure part of electricity supplies from Europe and manpower shortages, Interpipe has been operating with limited operational disruptions. Its assets in central Ukraine remain by and large undamaged.
Robust Financial Performance: We estimate Interpipe generated over USD250 million operating EBITDA in 2024. Weaker growth across major markets is affecting demand for pipes and railway wheels and we assume that earnings will moderate towards USD225 million in 2025. Interpipe has benefited from reduced tariffs on Ukrainian steel products in the US and the EU. The impact of the changing US policy agenda under the Trump administration is unpredictable for now. A potential removal of the section 232 exemption for Interpipe later in 2025 would only have a limited earnings impact.
Strong Free Cash Flow (FCF): Interpipe has paid the final instalment of performance-sharing fees (linked to its previous debt restructuring). While we assume moderating earnings linked to weak economic conditions and capex to revert to more normal levels of USD70 million-USD80 million per annum, we expect FCF before potential distributions to be strong at over USD100 million in 2025 and 2026.
Bond Refinancing in Focus: Interpipe launched a discounted tender offer for up to USD100 million notional of its USD300 million 2026 bonds on 6 January 2025. It signals its intention to evaluate options for addressing the upcoming maturity ahead of the May 2026 deadline. The ultimate bond repayment will be driven by the CBU's decision.
Derivation Summary
Interpipe is rated lower than Metinvest B.V. and Ferrexpo plc. Metinvest is rated one notch higher at 'CCC', due to cash-generating assets outside of Ukraine, supporting its business profile and financial flexibility, while Ferrexpo is rated at 'CCC+', due to the absence of financial debt.
Key Assumptions
- Operating EBITDA of USD220 million-USD225 million in 2025 and 2026, down from over USD250 million in 2024
- Capex of USD83 million in 2025 and USD71 million in 2026, up from USD48 million in 2024
- Positive FCF of over USD100 million per year in 2025 and 2026, up from around USD30 million-USD40 million in 2024
Recovery Analysis
RECOVERY ANALYSIS ASSUMPTIONS
Our recovery analysis assumes that Interpipe would be a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated.
Interpipe's GC EBITDA of USD120 million is well below our mid-cycle estimate. It captures the possibility that, in a financial restructuring, not all its assets may remain operational or that logistics constraints could limit exports due to the ongoing military conflict.
We use an enterprise value/EBITDA multiple of 3.0x to calculate a post-reorganisation valuation, reflecting the concentrated nature of key manufacturing assets in a territory with military conflict.
After deducting 10% for administrative claims and taking into account ֳ's Country-Specific Treatment of Recovery Ratings Criteria, our analysis resulted in a waterfall-generated recovery computation (WGRC) in the 'RR4' band, indicating a 'CCC-' rating for the company's senior unsecured notes. The WGRC output percentage on current metrics and assumptions is 50%. The Recovery Rating for corporate issuers in Ukraine is capped at 'RR4'.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
- Default of some kind appearing probable or near default, e.g. decision not to pay coupon or inability to service debt or the formal announcement by Interpipe or their agent of a distressed debt exchange
- An intensification of the conflict with Russia leading to damage to key production assets
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
- De-escalation of Russia's war in Ukraine, reducing operating risks
- Repayment of all outstanding gross debt
Liquidity and Debt Structure
We assume Interpipe held more than USD250 million of available liquidity at end-2024, a large proportion of which was held offshore. Repatriation requirements apply to the majority of these offshore funds. Such liquidity will allow the company to service its financial obligations in 2025, which are limited to cash interest (USD25.1 million bond coupon plus incremental interest for a domestic loan) and around USD14 million principal (linked to domestic loan facilities in Ukraine).
Our forecast indicates FCF before distributions of more than USD100 million a year in 2025 and 2026. As a result, the company should have sufficient funds to repay its USD300 million bonds in 2026, but will need approval from the CBU to make this payment or refinance at least part of the notional ahead of the legal maturity.
Issuer Profile
Interpipe is a Ukrainian producer of high value-added steel products, mostly pipes and railway wheels.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
to access ֳ's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. ֳ's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.
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PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
- Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Interpipe Holdings Plc | UK Issued, EU Endorsed |