KME to partially redeem debut bonds due 2023

Germany-based copper producer KME SE announced Feb. 22 the partial redemption of €190 million of its €300 million of 6.75% secured bonds due 2023, which will be bought back at par across three tranches on March 4, March 31 and April 22.

The notes were put in place in February 2018 at a discount to par to yield 7% in what marked a bond market debut for the issuer. KME is controlled by Milan-listed investment firm Intek Group, which operates across copper, renewable energy, services and private equity.

The move to buy back the bonds comes after the company on Feb. 9 announced a new €75 million long-term bank facility, which some analysts expected to be used to finance a full bond redemption. KME at the same time said it had extended its existing €320 million bank facility and a €150 million factoring facility through November 2022, which are provided via lead arranger Deutsche Bank.

It has since emerged that proceeds will be used to fund its acquisition of the flat-rolled products business of copper recycler Aurubis, according to market sources. The transaction was completed Feb. 17 for a purchase price of roughly €8 million plus the value of the net working capital at the closing date of the transaction.

Its bond prices were, however, little changed, closing Feb. 22 at 94.361, according to S&P Global Market Intelligence data — in line with when the new bank facility was secured on Feb. 9. But news of the partial redemption has sent the bonds up to 98-bid, according to some sources.

For the funding of the Aurubis carve-out, KME said Feb. 17 that the equity would be funded via its own financial resources, and the working capital (which amounted to €67 million as of June 2021) via third-party financing.

KME is rated Caa1 by Moody’s and B- by Fitch, both with positive outlooks. Fitch in October 2021 upgraded the company from CCC+ on the back of "material deleveraging" after KME divested a 55% stake of its special division to German private equity group Paragon Partners, and it based its positive rating trajectory on "structurally higher copper prices."