CRISIL has downgraded the rating of Jharkhand Road Projects Implementation Company Limited’s (JRPICL’s) non-convertible debentures (NCDs) from ‘BB (SO)’ to ‘D’ over non-payment of interest and principal. JRPICL is a subsidiary of IL&FS Transportation Networks Ltd (ITNL), and part of the Infrastructure Leasing and Financial Services Ltd (IL&FS) group.
The downgrade reflects non-payment of interest and principal on CRISIL-rated NCDs that were due on January 21, 2019, as confirmed by the trustee (IDBI Trusteeships Ltd) and investors. This is due to non-adherence to the structured payment mechanism, despite adequate funds in JRPICL’s escrow account.
CRISIL had earlier said there was heightened risk of default owing to reversal in the IL&FS management's earlier stance of maintaining the integrity of JRPICL’s ring-fenced structure and structured payment waterfall.
This had resulted in legal risks for bankruptcy-remote special purpose vehicles (SPVs) such as JRPICL.
With its strong track record of smooth operations, JRPICL has enough funds to comfortably service the NCDs.
As on December 31, 2018, the company had Rs 345 crore liquid funds available for debt servicing (around 4.5 times the quarterly debt obligation of Rs 76 crore due in January 2019).
The default is an indication of change in the management’s willingness to pay.
This also indicates the emergence of increasing legal risks over the interpretation of National Company Law Appellate Tribunal's (NCLAT) interim stay order of October 15, 2018.
The IL&FS management had earlier confirmed that its proposed resolution plan for the group will not compromise JRPICL’s ring-fenced structure and the structured payment waterfall.
Invocation of NCLAT’s stay order by JRPICL to withhold regular debt payment is a reversal of the management’s previous stance.
It also challenges the legal standing of the ring-fenced nature and bankruptcy-remoteness of the SPV.
Owing to this, despite having adequate cash surplus, JRPICL has defaulted on its debt obligation, CRISIL said.