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Fitch puts Noble Group debt on negative credit watch, downgrade to junk possible

Global credit agency Fitch Ratings said May 6 it placedcommodity trader Noble GroupLtd. on "rating watch negative," warning that it coulddowngrade the company's debt one notch further, to junk status, if the traderfailed to refinance a credit facility maturing this month at"competitive" rates.

Fitch said its negative outlook on the trader was due to thereduction in Noble's financial flexibility resulting from the current"difficult" operating environment for commodity traders.

Noble's quarterly working capital yield — measured as EBITDAover working capital — has dropped below 4% four times since 2014, reflectingthe "low visibility in commodity prices", which has forced Noble touse shorter-term finance and secured debt, according to Fitch.

That increases the company's credit risk profile, reducesfinancial flexibility and strains the level of senior unsecured debt, thecredit agency said in its report, adding that Noble already has a BBB- creditrating, which is one slot above non-investment-grade status.

Fitch confirmed it would resolve its negative outlook on thecompany by the end of May, when the company completes refinancing of a portionof its already committed US$2.2 billion credit facility that matures thismonth.

Fitch could lift the negative credit watch if Noble managedto refinance this at "competitive pricing levels".

Noble's ratio of working capital to total debt was alsoexpected to improve to around 1.1x following the company's debt repayments inthe first quarter, roughly in line with other higher-rated competitors, Fitchnoted.