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Is It The Downgrade?

16 February 2016 by lberuti

Yesterday after the close, Moody’s junked AALLN ( Anglo American Plc ). While, a downgrade to sub investment grade was largely expected, the 3-notch move from Baa3 to Ba3 with an outlook which is still negative probably came as a surprise to most investors. That was not the only piece of news though, as AALLN also reported their 2015 full year results this morning. EBITDA is down 38% year on year on the back of the decline of commodity prices and net leverage was up to 2.7x at the end of December. Encouragingly, management increased their divestment target for 2016 to $5-6bln from $3-4bln, but many will question the feasibility of this ambitious plan in the current environment as buyers are few and far between. AALLN also ruled out a capital increase at this stage, and that is probably the main reason behind the 77bps widening to 1057bps of the 5 year risk premium (yes, if you check on our new Probability of Default grapple, it means the market only sees a 40% probability that AALLN will be a going concern in December 2020).