S&P downgrades TK Aluminum

Standard & Poor's said it lowered TK Aluminum Ltd.'s long-term corporate credit rating to SD (selective default) from CCC- and the rating on the €240 million senior unsecured notes due 2011 issued by Teksid Aluminum Luxembourg Sarl SCA and guaranteed by TK Aluminum to D (default) from C.

The ratings were removed from CreditWatch, where they were placed with developing implication on Nov. 6 following TK Aluminum's announcement that it entered into a definitive agreement to sell some of its assets to Tenedora Nemak SA de CV.

The downgrade follows TK Aluminum's default on interest payment due to senior noteholders on Monday. The company plans to launch a new tender offer - its December tender offer was terminated unsuccessfully - and said the repurchase price will represent a significant discount to par. The company is also negotiating with lender to obtain waivers on its senior and second-lien credit facilities.

TK Aluminum is working to close the sale agreement with Tenedora, which will result in €495.9 million in cash and a synthetic equity interest in Nemak. S&P said that notwithstanding the agreement with Tenedora, a number of additional agreements and waivers are needed to complete the deal and any further delay will complicate the company's already extremely tight liquidity situation. The agency said the company had €25 million in cash and cash reserves at Nov. 30 and its senior revolver was fully drawn.

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