TRIS Rating Co., Ltd. has downgraded the company and issue ratings of Italian-Thai Development PLC (ITD) to “BB+” from “BBB-” and has placed the ratings on CreditAlert with “negative” implications. The rating actions reflect TRIS Rating’s concern that ITD may violate a financial covenant on the recent test date, which came at the end of June 2012. The actual result, whether ITD is or is not in violation of a covenant, will be known when the company publishes its mid-year financial statements. According to its financial agreements, the company has to maintain a net debt to equity ratio at or below 2.5 times. At the end of March 2012, its net debt to equity ratio stood at 2.86 times. Currently, there is no concrete evidence from the company to prove that it can prevent a breach of the financial covenant before the test date.
In case of a covenant breach, the company must obtain waivers from its banks and bondholders. Although it is likely that ITD would get waivers from its banks, the likelihood of obtaining a waiver from bondholders is uncertain. In the event of a covenant breach, the bondholders have the right to accelerate repayments. If the bondholders exercise this right, ITD would face a severe refinancing risk in the near term.
The CreditAlert of ITD’s ratings will be resolved once the issue of a covenant violation is clear, said TRIS Rating. — End
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