Trafigura to take over world's second-largest zinc smelter

Trafigura Group Ltd. will take control of Nyrstar NV, Europe’s biggest zinc smelter, as part of a deal to restructure the struggling company’s debt and steer it away from bankruptcy.

Under the agreement, Trafigura — Nyrstar’s main shareholder as well as a top supplier, customer and financier — offered a package of its own debt securities to Nyrstar’s creditors in exchange for them writing off debt.

Trafigura gave Nyrstar a $650 million rescue package late last year to keep the company running smoothly in the face of cash shortages

The deal will stretch Trafigura’s balance sheet, which is already heavy with debt, and force the commodities trader to double down on an investment in a company that’s on the brink of collapse. It would also see Nyrstar’s creditors, many of them distressed debt specialists and hedge funds, become Trafigura’s investors.

“The proposed debt restructuring is, we believe, the best possible solution for all stakeholders despite significant and painful losses incurred,” Trafigura Chief Executive Officer Jeremy Weir said in a statement. “Nyrstar has been faced with substantial financial and operational difficulties over the last few years, but it also has very solid industrial and mining operations on which we can build a stable future.”

The plan also involves selling Nyrstar’s assets to a new U.K.-based company, in which Trafigura will hold a 98 percent stake. Nyrstar will keep the remaining 2 percent, meaning that existing shareholders will be almost entirely wiped out.

For Nyrstar, this marks the end of the decade-old company, which accumulated massive debts during an ill-fated foray into mining around the start of the decade. Trafigura gave Nyrstar a $650 million rescue package late last year to keep the company running smoothly in the face of cash shortages.

Trafigura needs 75 percent of creditors in each class to agree to the deal by April 29 for it to be valid. It may need to be approved by a U.K. court.

Nyrstar’s 500 million euros ($565 million) of bonds due March 2024 gained 5 cents on the euro to 45 cents on Monday, according to data compiled by Bloomberg. The shares, which had been suspended since last Monday, resumed trading and fell to 28 euro cents from 65 cents.

“Considering the substantial priority liabilities ranking ahead of bondholders, we think this is a decent proposal,” said Felix Fischer, global head of research at Lucror Analytics in Singapore. “However, there is execution risk considering that you need three-quarters of each creditor class to approve the deal.”

Smelter losses

Nyrstar has been working to restructure its debts since October after an unexpected profit warning sparked a selloff in the company’s shares and bonds. The news fueled doubts about its ability to pay down more than 1 billion euros in borrowings.

The deal to stave off bankruptcy was struck between Nyrstar, Trafigura, and a group of creditors with exposure to the company’s bonds, working capital loans and production-financing arrangements known as prepay deals.

The deal is a significant one for Trafigura. While it does already operate mining assets in Spain, adding Nyrstar will markedly increase the company’s headcount and industrial operating costs, as well as giving it more exposure to volatile zinc and lead prices.

Bondholder package

Nyrstar’s bondholders would receive a package valued at 586 million euros, including: 262.5 million euros in Trafigura perpetual bonds, 80.6 million euros worth of Trafigura senior notes, and 225 million euro commodity price-linked instrument. In exchange, they would cancel 955 million euros in existing debts. The deal has been accepted by a group holding 44.8 percent of Nyrstar bonds maturing over the next five years, but still needs to be approved by other creditors. Other key parts of the deal: Trafigura plans to inject $250 million into the company via a bridge financing facility. Banks will also provide up to 160 million euros under a new revolving credit facility. A $650 million trade finance facility will be reinstated. Existing perpetual securities relating to Nyrstar’s Port Pirie plant will be unaffected.

(By Mark Burton and Andy Hoffman)