No man’s credit is as good as his money, noted philosopher John Dewey. Tell that to Nyrstar, a Belgium-based producer of zinc and lead. The heavily indebted company has struggled to pay creditors recently. The top investor with 24 per cent is commodity trader Trafigura. It has had to give Nyrstar an emergency loan to keep it in business. Rather than lighten Nyrstar’s load, Trafigura only piles lead on to it.

Nyrstar is an important link in the world’s zinc and lead supply chain. But its market worth has dropped from €1.3bn to under €100m since April 2015. A pricey takeover, an expensive smelter upgrade and, of late, a weak zinc price, have taken their toll.

The company’s ratio of net debt to ebitda has averaged over three times over the past decade. It is now more than five times. Worse, the metal producer’s operating profits do not cover its interest payments of about €100m annually.

Nyrstar has had to stick its hand out for cash, or at least the promise of it. Trafigura, which relies on Nyrstar for its zinc and lead marketing, had already put up $250m credit facility to help Nyrstar get through 2018. On Wednesday, the Swiss trader lifted that to $650m, and made the facility senior to all other debt. At the end of September Nyrstar claimed it had more than €600m in liquidity to cover any cash shortfalls.

Other debt holders cannot be happy. Nyrstar has appointed restructuring advisers, and no wonder. It has a €350m high-yield bond due next year. Raising equity is not easy.

Trafigura has a lot of debt too. Even using the group’s preferred net debt figure of $3.8bn, that is treble its previous 12 months ebitda. The commodity trader will not want to put in more cash, nor allow a rights issue for Nyrstar to dilute its stake below 20 per cent. It would lose director seats. Trafigura controls half the board with less than a quarter of its shares. Nyrstar’s chairman Martyn Konig, in theory independent, manages the family office for Trafigura’s partners. This is poor governance.

Asset strippers are circling. Nyrstar’s 2019 euro bonds trade at 46 cents. Expect Nyrstar’s share price to head to zero in a debt-for-equity swap. A prolonged battle between debtholders lies ahead. For hard-nosed investors who are bullish on the zinc and lead prices, there will be alchemical value in Nyrstar’s base metals.

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