Ovako Bonds Fall by Record as Weak Steel Demand Hurts Earnings

Ovako bonds suffered a record decline after the Swedish steelmaker’s earnings tumbled 33 percent on weak demand and Chinese competition.

The company’s 300 million euros ($339 million) of bonds due in June 2019 fell 6 cents on the euro to 75 cents, the lowest since March, according to data compiled by Bloomberg. First-quarter earnings before interest, taxes, depreciation and amortization fell to 18 million euros, excluding restructuring costs, the Stockholm-based steelmaker said in a statement. Sales declined 12 percent.

Ovako, owned by private equity firm Triton Advisers Ltd., is working to cut costs as it contends with slower demand from customers, particularly in oil and gas. Steel prices have also been depressed worldwide by a flood of Chinese exports, which reached a record last year.

Trailing 12-month Ebitda was 39 million euros, which is “relatively close” to a covenant of 35 million euros on Ovako’s revolving credit facility, Lucror Analytics said in a note. Still, the research company doesn’t foresee any potential violations that would trigger a payment default.

The steelmaker faces a “challenging market environment,” Marcus Hedblom, its chief executive officer, said in the earnings statement. “Low industrial activity and increased imports into Europe put additional demands on Ovako’s activities in both production and sales.”

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