Pan Brothers at risk of default: Moody's

The outlook on all ratings remains negative.

Moody's Investors Service has downgraded garment manufacturer Pan Brothers's corporate family rating to Ca from Caa1 amidst high expectations of an imminent default and as the risk of debt restructuring draws closer.

The outlook remains negative on all ratings.

"The downgrade reflects our expectations of a high likelihood of imminent default, and the increasing risk of a debt restructuring as the 27 January maturity of its $138.5m revolving credit facility draws closer," Moody’s analyst Stephanie Cheong said.

"The negative outlook reflects the additional uncertainty around the recovery rate for its $171m bond due 2022 in case of a default," Cheong added.

According to Moody’s, the company's ability to service its financial obligations mainly depends on whether it can come to a satisfactory resolution with syndicated lending banks on the extension of its $138.5m revolving credit facility before it comes due.

A missed payment not remediated within the cure period is an event of default under the indenture of its US dollar bond due 2022 and could lead to an acceleration of payments.

Should a default occur, Moody's estimates that the prospect of a full recovery of principal and interest for the senior secured bondholders will be low.

Pan Brothers had plans to issue a $350m bond to refinance the revolving credit facility and its outstanding senior unsecured bond due 2022. However, Moody’s noted that these plans cannot be executed until the company receives the requisite waiver and consent from existing syndicated lending banks and letter-of-credit providers, including the extension of its revolving credit facility.

“That said, even if these consents are obtained, we believe the company will only be able to launch a bond in February, at the earliest,” Moody’s said.

The ratings could be upgraded or the outlook be stable if the company refinances both its revolving credit facility and bond, resulting in a sustainable capital structure with adequate liquidity, according to Moody’s, whilst the ratings could downgrade further if the losses for the company’s creditors will be higher than those implied by the Ca rating.