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Atlas Iron debt restructure results in S&P downgrade to 'selective default'

S&P Global Ratings has downgraded Atlas Iron Ltd.'s long-term corporate credit rating to selectivedefault from CC and lowered the rating on the company's senior secured notes todefault from CC after the company implemented its debt restructure, The Sydney Morning Herald reported May 9.

The restructuringprogram covers the debt-for-equity swap deal, giving the lenders 70%of the company's shares in exchange for the US$132 million debt cut.

"We lowered the rating on Atlas Iron because we view thecreditors' scheme of arrangement as being a distressed debt exchange, as in ourview the creditors received less than what was promised on the original TLB,"S&P analyst May Zhong said.

Zhong added that without an agreement with the lenders, AtlasIron is at risk of a conventional default over the near to medium term due to achallenging iron ore market.

The downgrade came five months after the rating agency cut thecompany's credit rating to CC from CCC+ following the announcement of the restructuringprogram in December 2015, referring to the deal as a "distressed debt exchangeequivalent to a de-facto default."

"We expect to review the corporate credit, recovery andissue-level ratings in the near term. Our analysis will incorporate the company'snew capital structure and liquidity position, while still taking into account itschallenging operating environment," Zhong said.

Glencore Plc-controlledMaru Sky Ltd. became Atlas Iron's largestshareholder with an 8.5% stake following the debt restructure.

S&P Global Ratingsand SNL Metals & Mining are owned by S&P Global Inc.