NWR Bonds Rally on Accord to Buy New Shares to Cut Debt

New World Resources Plc’s secured bonds surged the most ever after investors including billionaire Zdenek Bakala agreed to restructure debt held by the miner, which has lost 97 percent since its 2008 share issue.

Under the agreement, NWR’s debt will be cut to 450 million euros ($612 million) from 775 million euros, the Amsterdam-registered company said today. As much as 160 million euros of additional capital will come from existing shareholders and bondholders. The company, controlled by Bakala’s BXR Group, is also seeking an underwriter for a 25 million-euro equity issue.

The restructuring agreement follows six consecutive quarters of losses for NWR, which has suffered from a continuous slump in coal prices and pressure from the Czech government to halt its plans to close its unprofitable Paskov mine. NWR agreed to keep the coal shaft, which employs 3,000 workers and hits the company with an $80 million loss each year, open until 2017.

“BXR is clearly expecting prices of coal to rise, otherwise they wouldn’t be doing this,” Petr Bartek, an analyst at Erste Group Bank AG in Prague, said by phone. “But let’s not forget that, given today’s coal prices, the company is still cash-flow negative.”

‘Heavily Diluted’

The secured notes due May 2018 rose 9.1 cents on the euro to 72.3 euro cents, the steepest advance since the security was issued in April 2010. The yield fell 444 basis points to a four-month low of 18.08%. Shares jumped 35 percent in London, the most in more than five years, to 34.50 pence by 1:46 p.m. In Prague, NWR rose 9.1 percent to 11.45 koruna.

BXR Group, Bakala’s investment company, will inject 75 million euros in exchange for new NWR shares, while a further 50 million euros will be invested by some other existing bondholders. Certain bondholders will also back a 35 million-euro super senior credit facility, the company said.

“The proposed transaction takes into account the interests of all stakeholders, and would provide a strengthened capital structure,” NWR said in the statement. “However, it is anticipated that existing minority shareholders who do not take up their rights will be heavily diluted.”

A maximum of 60 million euros of senior secured notes will be bought back at no more than 75 percent of their value, the company said. The remaining 425 million-euro of senior secured notes will be exchanged for 300 million euros of new senior secured bonds and 115 million euros of convertible bonds.

Of NWR’s existing 275 million euros of senior unsecured notes, a maximum of 30 million euros will be bought back at no more than 25 percent of their value, the company said.

“The deal on buying back part of the secured debt is interesting because the offer is higher than the current price,” Erste’s Bartek said. “Even on the unsecured notes the offer is better than if the company went bankrupt.”

The transaction should be completed by the end of September 2014, NWR said.

Before it's here, it's on the Bloomberg Terminal.