In mid-August we warned that Noble Group's downgrade to junk by one or more rating agencies, was inevitable, a downgrade which finally took place yesterday when Moody's downgraded the firm from Baa3 to Ba1, keeping it on outlook negative (we expect S&P to follow suit in the next few days).
The reason why the downgrade was "catalytic" for the company is because while one can debate Noble's existing liquidity (recall that in anticipation of just this downgrade, Noble increased its secured revolving trade credit facility to $1.1 billion from $450 million in October), the reality is that the majority of Noble's banking facilities are contingent on retaining an Investment Grade status. As such, it is only a matter of time before a feedback loop of shrinking liquidity collateral calls which prompt asset sales, which force even more collateral calls, until finally the company succumbs to its vast debt load, takes place.
For now, however, Noble refuses to throw in the towel, and overnight released the following statement on the Singapore Exchange where its massively beaten down stock trades:
Noble Group statement on Moody’s credit rating action
We note the action taken by Moody's in downgrading us on 29 December 2015, following their recent lowering of ratings across the entire commodity sector.
Whilst we respect Moody's decision, we are of the firm view that, once the just announced Noble Agri deal closes, our rating metrics will substantially exceed those required of an investment grade credit. We are confident that the deal will be approved by our shareholders and will close before the end of February.
It is unfortunate that this transaction has seemingly, in our view, been outweighed by Moody's negative view of the commodity producer segment.
As an asset-light supply chain manager, the current environment is opportunity rich and plays to our strengths, while the low price environment substantially reduces the working capital required to support our business.
The matter is not expected to have any material financial impact and/or any material impact on the Group's operations.
We continue to enjoy investment grade status with our two other ratings agencies and will work with Moody's to ensure that our rating reflects the financial metrics that Noble will attain.
Noble Group Limited
30 December 2015
We haven't seen a new CDS run as of this morning, but judging by where the company's implied default risk was last night (77%), the market isn't holding its breath for Noble management to be proven right.