The adjustment, announced on Thursday, came after the company failed to maintain its EBITDA (earnings before interest, taxes, depreciation, and amortization)-to-interest coverage ratio above the required threshold of 5.0 times, recording 4.3 times as of end-September due to deteriorating market conditions in the petrochemical industry.
Under the clause in the covenants for 14 bonds issued between September 2013 and March 2023, investors can declare an EOD (event of default) and demand an early redemption of the bonds if Lotte Chemical fails to maintain a certain level of profit over the previous three years.
Declaration of an EOD in a certain bond could result in the cross-default of all Lotte Chemical borrowings, which in turn raises the possibility of liquidity risk for the entire group.
The chemical unit of Lotte Group held bondholders' meetings at Lotte World Tower in Seoul to modify the term on 14 different corporate bonds, which will be finalized after court approval.
To reinforce credit stability, Lotte Group had offered Lotte World Tower, valued at over 6 trillion won, as additional collateral through discussions with major creditor banks.
"After credit enhancement measures, we received over 90 percent prior consent from bondholders through written and verbal agreements," said Sung Nak-sun, Chief Financial Officer at Lotte Chemical, after the bondholders' meeting.
The company maintains about 4 trillion won in available liquidity, including 2 trillion won in cash deposits as of October. It is also pursuing asset-light strategy through restructuring of low-efficiency businesses and disposal of non-core assets.
Lotte Chemical is currently working on securing additional liquidity of 1.3 trillion won by utilizing overseas subsidiary shares, following its decision to liquidate its synthetic rubber manufacturing subsidiary LUSR in Malaysia in October.
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