Bloomberg
CF Industries Clears Path for Restructuring at U.K. Units
Jack Pitcher
Wed, February 2, 2022, 9:37 PM
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CF
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(Bloomberg) -- Bondholders of fertilizer producer CF Industries Holdings Inc. agreed to amend the company’s debt covenants, clearing a path for it to restructure its troubled U.K. operations.
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Bondholders agreed to let CF Industries remove its U.K. units from the definition of a “substantial subsidiary” in exchange for a $2 fee per $1,000 of principal on four different outstanding bond issues, the company said in a regulatory filing Tuesday. In a previous filing, the Deerfield, Illinois-based manufacturer said it sought to change the definition so that restructuring its U.K. operations would not trigger a technical default on the bonds.
CF Industries stock has been surging over the past year as the company benefits from strong fertilizer demand. But high natural gas prices in the U.K. prompted CF Industries to close two fertilizer plants there last year, with the rising input costs making production unprofitable. CF Industries took a $495 million non-cash impairment charge on its U.K. assets when it reported earnings in November, reflecting the reduced value while the plants are unprofitable.
CF Industries says its U.K. operations, which produce fertilizer with carbon dioxide as a byproduct, account for just 2% of consolidated gross margin. But because its U.K. plants are the biggest producer of carbon dioxide in the country, shutting them down caused a temporary crisis. The gas is used for stunning pigs and chickens at slaughterhouses, carbonating beer and soda and extending the shelf life of fresh food. CF Industries alone is responsible for roughly 60% of the U.K.’s commercial carbon dioxide supply.
Under a deal struck in October, the U.K.’s carbon dioxide industry agreed to pay more for CO2 from the fertilizer company in order for it to resume operations. Previously, the U.K. government had provided financial support to keep the plants running.
An extension of that deal, which should ensure supply continuity until the spring, was announced Tuesday. But under the new bond agreements, a default for the U.K. subsidiaries would not cause a default for the full company, giving it more leeway to restructure the U.K. operations.