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Chile's Cap Seeks Changes to Bondholder Protection Covenants

By Nathan Gill and James Attwood
Aug. 12 (Bloomberg) -- Cap SA, the Chilean steelmaker that posted a first-half net loss yesterday, is seeking changes to bondholder protection rules governing capital requirements.

Bondholders will be presented with a proposal on Aug. 28 to modify minimum capital levels, Banco Santander SA, which represents bondholders, said in a statement posted today on the Web site of Chile’s stock exchange.

The proposed changes are a precaution to give Cap “more flexibility” in case earnings continue to decline, said Sergio Fuentes, director of corporate and financial institutions’ ratings at Standard & Poor’s International LLC in Argentina. Ernesto Escobar, a Cap spokesman, wasn’t available for comment.

“It’s a preventative attitude,” Fuentes said in a telephone interview from Buenos Aires. Cap wants “more space to ensure it doesn’t breach its covenants.”

Cap, Chile’s biggest steelmaker, reported yesterday a $34 million loss for the first six months of the year, without posting separate second-quarter results. Second-quarter earnings before interest, taxes, depreciation and amortization fell 75 percent from a year earlier to $32.5 million, according to Bloomberg data.

The “weak” results were because of falling sales and the lower prices of steel and iron-ore, Banchile Inversiones wrote today in a note to clients.

S&P may downgrade its BBB- rating on Cap if profitability declines continue, Fuentes said.
“We are watching Cap very closely to see if we can define a trend as to where and in what range the company’s Ebitda stabilizes,” Fuentes said.

Cap sees a “progressive normalization” of its steel business and a return to profitability toward the last quarter of the year, it wrote yesterday in a statement accompanying earnings. Steel prices have risen about 20 percent from lows, while the iron-ore profit outlook has improved, Cap wrote.

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