Sydney, June 07, 2017 -- Moody's Investors Service has downgraded Quintis Limited's (formerly known as TFS Corporation Ltd) corporate family rating and senior secured debt rating to Caa1 from B3, and has maintained the ratings on review for further downgrade.
RATINGS RATIONALE
"The rating action and review follows the company's response on 6 June to an ASX query that creates significant uncertainty around its future earnings and the take up of investments in its new plantations, says Maurice O'Connell, Senior Credit Officer.
The company has withdrawn its earnings guidance and trading in its securities remains suspended in light of the sharp deterioration in its operating condition, following the cessation of contracts; resignation of company's former managing director; and a potential corporate transaction that could lead to a change in control.
"Quintis' credit profile remains highly sensitive to the sale of investments in its plantations to Beyond Carbon and Sophisticated Investors, and the delay in clarifying the company's outlook could have a material impact on investor appetite", adds O'Connell.
Also, the company has highlighted a potential debt and equity transaction. If this results in additional debt against the backdrop of lower earnings, it could weaken the firm's credit metrics beyond the appropriate levels for the rating.
Quintis' leverage was 6.3x for the half year ended 31 December 2016.
The rating review will focus on 1) the potential impact of the pending debt and equity transaction; 2) the ability to attract continued institutional investment to support revenue and cashflow; 3) Quintis' strategic direction and financial policy under new management; 4) the ability to replace earnings from lost contracts; and 5) the impact of a potential takeover and resultant change in ownership.
What could change the rating - Down
Quintis' rating could be downgraded if: [1] the company is unable to execute its strategy of increasing revenue from the sale of oil and heartwood; [2] lower investment uptake in new plantations by Beyond Carbon and Sophisticated Investors; or [3] yields and sales from its harvests fall below expectations. Any of the above could reduce expected cash flow generation and ongoing demand for its investment products, such that there is heightened risk of default.
What Could Change the Rating - Up
The rating could be upgraded if Quintis obtains new contracts for its oil and hardwood products to replace lost revenue; is able to demonstrate investor demand remains substantially in line with previous years; as well as maintaining adequate liquidity.
QIN Price at posting:
29.5¢ Sentiment: Sell Disclosure: Not Held
