Spectre of default stalks Noble agencies cut ratings

S&P Global Ratings and Moody’s Investors Service said there’s an increasing risk that Noble Group, the embattled commodity trader, may default on debt obligations in the next six months.

S&P cut Noble’s credit rating deeper into junk territory, lowering it by two notches to CCC minus from CCC plus, and kept a negative outlook, suggesting more downgrades are likely. Minutes after S&P’s statement was released, Moody’s followed with its own report that reduced the company’s credit rating by two levels, to Caa3 from Caa1.

"We see an increased risk that Noble may not be able to meet its debt obligations in the next six months," S&P said in a report.

Moody’s added: "The downgrade reflects significant default risk for Noble within the next several quarters, given its operating cash burn, declining cash levels and large debt maturities."

Moody’s painted a bearish outlook, saying that if a default occurs, "the prospect of a full recovery of principal and interest will be low for unsecured bondholders”.

Noble Group didn’t immediately respond to a request for comment.

Noble, once Asia’s largest commodity trader, last week reported a $1.75bn second-quarter loss, capping a crisis marked by losses and criticisms of its accounting that has wiped more than 90 percent from its market value.

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The company said it had secured a waiver until October 20 of financial covenants on its $1.1bn revolving credit facility due May 2018, effectively giving it two months to restore confidence among its banks, counterparties and investors.

Noble is also trying to sell assets to shore up its finances. Last month, it announced an agreement to sell the gas and power business to Mercuria Energy Group for $248 million. It has unsuccessfully searched for more than a year for a “white-knight” investor to inject fresh capital.

"We need to press on with the sale of our businesses in North America,” the chairman Paul Brough told investors last week. “Time is a factor in maximising proceeds, because of the high fixed cost base.”

Moody’s warned that the asset sales may not be enough to keep the company afloat.

"It is uncertain whether these sales will raise sufficient proceeds to meet its debt maturities and cash outflow over the next 12 months," it said, echoing similar comments from S&P.

Noble Group has debts of $1.5bn due in the next 12 months - including $378m in bonds due in March and the $1.1bn revolving credit facility due in May.