Ratings agency Moody’s has downgraded senior, unsecured bonds issued by troubled commodities trader Noble Group to so-called ‘junk bond’ status, in the very month that the US market for such products crashed.
As announced on 29 December, Moody’s cut the rating of Noble’s bonds from Baa3 to Ba1, while relegating the provisional grade of its senior, unsecured medium-term note programme in the same way.
Overall, the company has been left with a Ba1 corporate family grade, and has had its issuer rating withdrawn.
Moody’s said its decision reflected low levels of profitability and consistent negative free cash flow in the beleaguered firm’s core operations. Those factors exclude proceeds from recent asset sales that Noble has been forced to make in efforts to stabilise its business.
In the agency’s view, the global commodities downturn became particularly severe in the final two months of 2015. As a result, it said, those negative conditions could ultimately erode Noble's access to funding and challenge its profitability.
The downgrades compounded a turbulent year for Noble, which has struggled despite its prominent position as Asia’s largest, global supply-chain manager of physical commodities by revenue.
Moody’s vice president and senior credit officer, Joe Morrison, said: “The downgrade of Noble’s ratings reflects [our] concerns over the company’s liquidity.
“The downgrade also reflects the uncertainty as to whether or not these factors can be improved sustainably and materially – given our expectations of a prolonged commodity downcycle, and the consequent negative sentiment impacting Noble and commodity traders in general.”
Noble’s relegations are particularly concerning in light of a mid-December crash in the US market for junk bonds – defined as high-yield, but high-risk, fixed-income instruments that are typically issued by firms urgently looking to raise capital.
In what has been widely described as a rout for the market, US firms Stone Lion Capital Partners and Third Avenue Management pulled down the shutters on their activities, with investors in Third Avenue’s Focused Credit Fund learning that they will not be able to extract their cash. Instead, the will receive consolation stakes in a wind-down vehicle.
Meanwhile, fellow major player Lucidus Capital Partners liquidated its entire fund portfolio, worth a total $900m.
As a result of the crash, specialist junk-bond index the SPDR Barclays High Yield Bond ETF fell by two points – its biggest slump for four years.