Fitch Ratings has raised the issuer's Long-Term Default Rating (IDR) rating from Indonesia-based garment manufacturer PT Pan Brothers Tbk (PBRX) to 'CCC-' from 'RD'. Fitch has also upgraded the senior rating of Pan Brothers' USD171 million unsecured notes due December 2025, issued by PB International BV, to 'CCC-' with a Recovery Rating of 'RR4' from 'C'/'RR4'. At the same time, Fitch Ratings Indonesia has upgraded Pan Brothers' National Long-Term Rating to 'CCC-(idn)' from 'RD(idn)'. The increase follows the completion of the Pan Brothers syndicated loan and restructuring of the senior unsecured note on July 1, 2022.

The company extended the maturity of the USD171.1 million 7.625% bond, which originally matured in 2022, for four years and matured at USD138. Syndicated loan facility of 4 million for two years from December 2021. Restructuring requirements include a USD 50 million rights issue or subordinated loan, with funds to be kept in escrow until a corporate action to inject capital.

The 'CCC-' rating reflects liquidity pressures arising from the significant maturity of the USD124 million syndicated loan in December 2023. Fitch expects Pan Brothers to refinance the loan as we do not think the company will generate sufficient cash flow to repay the loan. We understand that the company has started the refinancing process, although we believe it will take some time.

The National Rating 'CCC' indicates a very high level of default risk compared to other issuers or bonds in the same country or monetary union.

Short-Term Debt Maturity Expenses: Pan Brothers managed to extend the maturity of its bonds and syndicated loans through restructuring. It will still face a short term maturity of USD124 million in December 2023, part of the USD138 million that has been withdrawn from the syndicated loan. The company has started discussions with various banks to refinance the facility. Successful refinancing that extends maturity will reduce immediate liquidity constraints.

Negative Cash Flow: We expect that Pan Brothers' cash flow from operations (CFO) will continue to be negative given its large working capital requirements. Liquidity pressures are exacerbated by Pan Brothers' maintenance and efficiency capital expenditure requirements, which we estimate to be around USD5 million per year.


Limited Financial Flexibility: We expect Pan Brothers' ability to secure additional bank facilities to remain a challenge due to the reduced appetite of banks to lend to the Indonesian textile sector amid challenges faced by a number of textile companies, exacerbating liquidity pressures from Pan Brothers. negative free cash flow (FCF). We understand that some Pan Brothers banks have chosen to stop lending to the company once their bilateral facilities have been repaid.

Therefore, the company is in discussions with new banks as it seeks to rebuild working capital lines, which are key to its operations. Only facilities from PT Bank HSBC Indonesia and PT Bank Maybank Indonesia Tbk (AAA(idn)/Stable) among the previous Pan Brothers letter-of-credit facility providers were converted into revolving loans. The Company may withdraw the unused amount from the converted loan after partial payment of this facility.