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Moody's: New World 'highly likely to default' as chairman warns of OKD bankruptcy within days

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Moody's: New World 'highly likely to default' as chairman warns of OKD bankruptcy within days

New World ResourcesPlc Chairman Gareth Penny has urged the Czech government to help restructuresome €300 million of debt to avoid its main unit, OKD a.s., from going bankrupt, Bloomberg News reported April29.

The unit has only two weeks of cash left and has warned thatit may be unable to pay worker salaries. OKD is the mainunit of New World Resources and employs some 13,000 people.

Penny's appeal comes a day after Moody's downgraded New World'scredit ratings to C with a negative outlook, from CAA3, amid expectations that thecompany is highly likely to default in the near future. Senior creditors and shareholdershad earlier denied extendinga super senior credit facility standstill and waiver agreement, after New Worldfailed to negotiate adeal with the government to restructureits financial indebtedness.

Moody's believes that even if a last-minute restructuring dealwere struck, the company's ability to fund operations through to completion of sucha restructuring is uncertain and highly dependent on the time frame for it.

Meanwhile, with no sustained recovery of coal prices in sight,it would be unrealistic to expect a swift reversal of the trend of cash burn, whichhas most likely accelerated since the start of 2016 due to the lower average realizedprices than a year ago.

"The deterioration of the coal market environment in 2015,and the recent indication by NWR that average prices achieved in Q12016 for its thermal and metallurgical coalsales were 16% and 15.5% lower compared to Q1 2015, highlightthat this will be another challenging year for the company, with no recovery insight," Moody's said.

Without new urgent liquidity from external sources, the companywill also most likely breach its minimum €40 million cash balance covenant underits senior secured credit facility on the June testing.

In addition, the negative outlook reflects the likelihood ofdefault within a short time frame, combined with the possibility of a lower-than-expectedrecovery for secured noteholders under a scenario of liquidation.