Fitch cut the long-term issuer default rating (IDR) of German cement producer HeidelbergCement AG to BB- from BB+ and put its ratings on "negative" rating watch.
Fitch affirmed the B short-term IDR of HeidelbergCement and lowered the senior unsecured rating of its subsidiary Hanson Plc to BB- from BB+ with "negative" rating watch.
The action was prompted by the recent news that HeidelbergCement’s major shareholder, the Merckle family, is experiencing financial difficulties, which might affect the company’s ability to repay its EUR US$5bn Tranche B Hanson acquisition facility, maturing in May 2010. The financial turmoil and tough operating environment on the US market as well as the deteriorating European market would probably lead to "a substantial reduction in headroom for the company under its existing debt covenants, or even result in a potential covenant breach."
The "negative" rating watch will be revised following an assessment of HeidelbergCement’s and its owner’s progress on refinancing negotiations. Depending on the outcome, the ratings of the cement group might be downgraded. The Merckle family is negotiating a standstill agreement with more than 30 banks to prevent them from making claims until financing is put in place to cover losses at the family’s investment unit, and to refinance debt.