Debt downgrade and Class Action

From the excellent Vesna Poljak in the AFR:

http://www.copyright link/business/...odys-after-contract-admission-20170512-gw399y

Bannister Law is investigating a potential class action after the shares were savaged by the market in light of the extraordinary disclosure.​

"Inadequate disclosure of this type is simply unacceptable in Australia. Continuous disclosure is at the heart of buyers' confidence in the share market and impacts directly on the share price of listed entities, as this news demonstrates," Charles Bannister said in a statement on Friday.​

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Whilst Moody's have downgraded QIN debt to B3 and it's on review for downgrade to C

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Moody's Downgrades Quintis to B3; Places Rating On Review for Downgrade​

Sydney, May 12, 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 B3 from B2, and has placed the ratings on review for downgrade.​

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RATINGS RATIONALE​

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"The rating action and review follows a number of negative announcements by Quintis which could reduce the company's future earnings and cash flow generation, and potentially negatively affect the willingness of wholesale investors to invest in new plantations", says Maurice O'Connell, Vice President, Senior Credit officer.​

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The most recent announcement relates to Quintis' subsidiary, Santalis Pharmaceuticals, which had entered into a 20 year contract to supply East Indian sandalwood oil to pharmaceutical company Galderma, a subsidiary of Nestle. Quintines supplied over 1200 Kg of oil to Galderma during the 2014-15 calendar years.​

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On 9 May 2017, Quintis' board was advised that Santalis' licensing and supply arrangements had terminated with effect from 1 January 2017.​

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Moody's notes that Santalis made no sales to Galderma in FY17 and that the Quintis' guidance for FY17 does not factor in any sales to Galderma. However, the loss of the contract beyond FY17 creates some uncertainty around the sustainability of its future earnings and cash flow generation, as well as the effectiveness of management reporting.​

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News of this development follows a previous announcement in March 2017, that Quintis had ceased shipping to its largest Chinese customer, and that its Managing Director had resigned.​

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Quintis production sandalwood and sandalwood oil is still ramping up as its first plantations reach maturity. In the interim, sales of investments in plantation assets still represent a material, albeit declining, source of revenue for the company.​

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Consequently, should the flow of negative news affect investor sentiment, the impact on revenues and cashflow could be material.​

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Quintis currently has elevated levels of leverage of more than 5.0x adjusted debt/EBITDA for the half year ended 31 December 2016, which further limits the company's ability to manage any unforeseen events.​

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The rating review will focus on company's ability to secure new contracts to maintain its earnings; the ongoing rate of take-up of investments in plantation assets; whether a put option to sell 400 hectares of plantation assets back to the company is exercised; clear direction from new management; and greater clarity on management reporting and corporate governance.​

What does a downgrade to C mean?



"Obligations rated Caa are judged to be speculative, of poor standing, and are subject to very high credit risk"

So it looks like Blackrock might end up owning QIN - not through a takeover offer but because they are the major secured creditor and if it defaults they will end up owning the trees anyway!