Glencore plays down impact of possible debt rating downgrade

(Adds details, background)

By Eric Onstad

LONDON, Oct (HKSE: 3366-OL.HK - news) 6 (Reuters) - Commodity group Glencore (Xetra: A1JAGV - news) , whose shares have been hammered by worries about its debt burden, sought to assure investors that the impact of any credit rating downgrade on its debt profile would be modest.

Glencore has investment-grade credit ratings, of BBB from Standard (Other OTC: SNDH - news) and Poor's and Baa2 by Moody's Investors Services, but some analysts and investors have speculated about a possible downgrade if hard-hit commodity prices remain weak.

Both agencies have Glencore on negative outlook and Glencore's credit default swap (CDS) prices, the cost of insurance against a firm's bankruptcy, have soared in recent weeks.

Glencore said in a statement on Tuesday that its funding costs would only increase marginally if credit ratings were cut.

The London-listed group said if ratings were downgraded by one notch, which would still be investment grade, there would be modest increase in margins on its $6.8 billion five-year revolving credit facility.

But since that facility was expected to remain fully undrawn, the net additional effect would only be 35 percent of that increased margin, applying only to the commitment fee, Glencore said.

The maximum margin for a sub-investment grade rating would be 1.1 percent, it added.

There would also be an impact on $4.5 billion of Glencore's outstanding bonds, where a margin step-up of 125 basis points would apply if they were rated sub-investment grade by agencies, the statement said.

The embattled trader and miner has pledged to cut its $30 billion of net debt a third by selling assets, reducing capital expenditure, suspending dividend payments and raising $2.5 billion via a share sale.

While Glencore shares have tumbled by about 60 percent this year, lenders have remained supportive of the Swiss-based group, which can finance its debt maturities for around two years, sources have said.

On Tuesday, Glencore's five-year CDS was bid at an upfront of 5 percent having spiked higher than 25 percent last week. (Additional reporting by Sarah McFarlane, Clara Denina and Robert Smith; Editing by Louise Heavens)