This rating action primarily reflects the continued uncertainty about the outcome of the company’s delisting appeal from the blacklist of the US Office of Foreign Assets Control (“OFAC”), as well as its cash burn rate since Scope’s last rating update on 28 March 2014.

Pending the outcome of the appeal to be removed from the OFAC blacklist, DFAG’s cash flows remain unpredictable both in terms of amount and timing. While the company is convinced that its former Iranian business activities did not violate any US or EU sanctions against Iran and is working intensively to disprove these allegations, the outcome and length of the proceedings remain uncertain.

In the meantime, with very limited business operations the company is living off its liquidity reserves. Scope estimates that DFAG has a current cash burn rate of roughly EUR 1m per month.

Although DFAG fully covered its EUR 2.36m coupon payment for its EUR 30m corporate bond on 27 May 2014 out of its liquidity reserve, the latter is not expected to be sufficient to cover the company’s short-term debt positions incl. credit lines. Short-term debt amounted to EUR 43.3m at YE 2013, while total debt stood at EUR 80m. It is Scope’s understanding that the company is in ongoing discussions with its financing banks, also to negotiate a prolongation of its maturing short-term debt.

Given DFAG’s restricted operational capacity, the short and medium term impact of the OFAC blacklisting and the associated existential risks, the rating remains under review for possible downgrade. A rating upgrade, however, could be warranted if DFAG returns to positive operating cash flow generation as a result of a delisting from the OFAC blacklist and if it is able to prolong its short-term credit facilities.

REGULATORY DISCLOSURES

Important information

Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility

The party responsible for the dissemination of the financial analysis is Scope Ratings GmbH, Berlin, District Court for Berlin (Charlottenburg) HRB 145472, directors: Florian Schoeller. 

The rating analysis has been prepared by Sebastian Zank, Lead Analyst
Responsible for approving the rating: Dr. Britta Holt, Committee Chair
 

Rating history

21.07.2014 CCC under review for possible downgrade
26.03.2014 B- under review for possible downgrade
14.02.2014 BB+ under review for possible downgrade
02.05.2013 BB+ outlook Positive

Information on interests and conflicts of interest

The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity.

As at the time of the analysis, neither Scope Ratings GmbH nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings GmbH or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Examination of the rating by the rated entity prior to publication

The rated entities have been given the opportunity to examine the rating action prior to publication. Following that examination, the rating was not modified.

Methodology

The methodology applicable for this rating (Corporate Rating Methodology published in March 2014) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.
 
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