NWR Bondholders ‘Likely’ to Back Restructuring, CFO Says

New World Resources Plc expects its creditors to approve a business-revamp plan next week designed to avoid bankruptcy, Chief Financial Officer Marek Jelinek said after the struggling Czech coal company’s loss narrowed.

Holders of NWR’s unsecured 2021 Eurobonds and secured 2018 notes are scheduled to vote on Aug. 29 on a proposal to cut the company’s debt. If they reject the plan, the secured debt owners will take over the company’s assets and “the recoveries of some creditor classes will be very low or possibly even zero,” Jelinek said in a phone interview today.

“It’s very likely that the restructuring is going to be approved,” he said. “If, as unlikely as I think it is, the creditors do not approve the proposed restructuring, we will immediately flip into the alternative implementation plan and will not be risking a protracted re-negotiation. This will all happen in the space of one day.”

Amsterdam-registered NWR is grappling with total debt of 810 million euros ($1.1 billion), or 26 times its current market capitalization, after falling demand for coal hit the miner with seven consecutive quarterly losses. The company requested protection from creditors in the U.S. on July 30.

The second quarter net loss shrank 90 percent from a year earlier to 30.2 million euros as cost cuts helped mitigate the effect of lower coal prices, NWR said in a statement earlier today. Revenue for the three-month period declined 22 percent to 174 million euros.

‘Some Time’

The shares fell 8.3 percent to 3.3 koruna in Prague, extending this year’s decline to 86 percent and valuing the company’s equity at 873 million koruna ($42 million). NWR’s 2021 bonds fell 2.9 cents to a record-low 9 cents on the euro, lifting the yield by 22 percentage points to 102 percent, according to data compiled by Bloomberg.

Under the overhaul plan, the company will lower its debt burden to 500 million euros and raise as much as 185 million euros in a rights offering to existing shareholders, including majority owner CERCL Mining BV, which would increase the number of shares 25-fold. The proposal was approved by the required majority of shareholders at a meeting yesterday.

If also supported by 75 percent of the present and voting holders of each of the two bonds on Aug. 29, the company will have enough capital to operate for at least another 12 months, NWR said in the earnings statement today. The alternative scenario would trigger insolvency, the miner said.

While the restructuring proposal indicates the new shares would be issued at about 0.65 koruna each, a fraction of the current price, a rejection of the plan by bondholders would make the existing shares worth even less, according to Josef Nemy, an analyst at Komercni Banka AS in Prague.

“The approval signaled by Mr. Jelinek today would be positive for the stock as its price would fall less than without the approval,” Nemy, who has a sell recommendation for the shares, said by phone today. “The restructuring would buy them some time, although not that much time really.”

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