Pi Capital
Date of publication: 19 May 2020
Today we will look at one debt security as investment ideas for this week: Freeport-McMoRan Inc.

IDEA #1: Freeport-McMoRan Inc.

Freeport-McMoRan Inc., mid-March 2020, lost more than half of its stock capitalization at the beginning of the year. The epidemic has led to a decrease in demand for copper, to a generation of hopes for the restoration of prices for this metal this year. Growth in emerging economies and weakening trade is expected to support prices. However, copper prices began to gradually increase in price, which could lead to a shortage of this metal, Freeport-McMoRan.

Nevertheless, the market expects a decrease in revenue indicators this year with a rather active recovery in 2021. (see table below). Meanwhile, I quarter of 2020 EBITDA and operating income.

Debt repayment schedule Freeport-McMoRan Inc. quite balanced (so, the average maturity is about 9 years). However, negative dynamics leads to a deterioration in credit metrics.

For example, the Net Debt / EBITDA ratio exceeds 4. However, the company's liquidity position looks solid: for example, as of March 31, 2020, it includes $ 1.6 billion. In addition, she had access to credit lines in the amount of $ 3.5 billion.

The Big Three agencies have not been reviewing their issuer ratings for quite some time (see table below). Now a composite ranking of Freeport-McMoRan Inc. two steps below the “investment” (BB), which does not have the most brilliant credit metrics of the issuer. Given the significant “pillow” of liquidity, the probability of a company defaulting over the next 12 months, according to Bloomberg, is only 1%. Note that the default probability of the FreeportMcMoRan Eurobond maturing in 2034. According to the default risk model, Bloomberg, 14%.

With a maximum level of the end of February, the 2034 Eurobond FCX lost about the current percentage, and the American High Yield Bonds Index (LF98TRUU) - about 10%. Interestingly, a year ago, taking into account the fact that it was accepted in the same volume as its obligations under US treasury obligations, it expanded by almost 200 bp during this time. P.

Alexey Shternshis
Joint Managing Director
Capital Pi


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