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Deutsche Bank Takes Hit From Metals Deal

Deutsche Bank Takes Hit From Metals Deal

(Bloomberg) -- Last summer, Deutsche Bank AG trumpeted a deal to strengthen the finances of Europe’s largest zinc smelter, Nyrstar NV.

Less than a year later, the Belgian company is undergoing a massive debt restructuring, and the $150 million financing structure set up by Deutsche Bank is in line for losses of as much as 70 percent. Although relatively small in absolute terms, the losses are a black eye for Deutsche Bank, one of the leading financiers of the natural resources industry.

Nyrstar racked up massive debts during an ill-fated foray into mining around the start of the decade. Deutsche Bank played a key role, becoming one of the struggling company’s leading financiers.

In addition to bonds, Nyrstar raised money from banks and traders through prepayments for future supplies of metals such as zinc, copper and silver.

Under the structure arranged by Deutsche Bank, called Politus, lenders advanced money to Nyrstar as a prepayment for future supplies of zinc. It is by far the largest of several prepayments that are being restructured under the deal announced on Monday, and is also potentially in line for some of the largest losses.

A spokesman for Deutsche Bank declined to comment.

Deutsche Bank Takes Hit From Metals Deal

To be sure, the German lender isn’t alone in taking a hit from Nyrstar’s restructuring. Commodity trader Trafigura Group Ltd., which will take control of the zinc company, has had to write off the more than 200 million euros it spent buying shares. Other banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. also advanced money to the smelter in exchange for future delivery of metal. So did traders like Glencore Plc.

According to a company presentation, Nyrstar owed 674 million euros ($761 million) through prepayments as of the middle of February -- a figure which includes $450 million in a lifeline Trafigura provided last November, which is not being affected by the restructuring deal.

But, while some other banks refused to roll over their prepayments with Nyrstar last year, Deutsche refinanced Politus last May and expanded it in July.

Politus is potentially in line for some of the largest losses under the deal announced on Monday. While prepay lenders will on average get 35 cents on the dollar under the deal if they don’t contribute to a new financing facility, lenders under Politus will get as little as 30 cents, according to people familiar with the matter, as it has a later maturity date. Still, they added, Politus lenders can get significantly better returns if they contribute to the new facility.

Long History

It’s unclear how much exposure to the Politus prepayment structure Deutsche Bank still has. Trafigura, which buys zinc from Politus under the deal, holds $30 million of the $150 million total, according to people familiar with the matter.

Deutsche Bank’s relationship with Nyrstar stretches back more than a decade and is likely to have delivered sizable earnings in fees and interest until now. Along with Goldman and UBS Group AG, it managed the zinc producer’s initial public offering in 2007. Deutsche Bank first organized prepayment financing through Politus in 2015, and it was a joint global coordinator for Nyrstar’s bond in 2017.

The bank was also mandated lead arranger for the company’s 600 million-euro structured commodity trade finance facility. Lenders under that facility, which is secured, won’t take any losses in the restructuring if they commit to participate in the new financing facility.

--With assistance from Luca Casiraghi and Mark Burton.

To contact the reporters on this story: Jack Farchy in London at jfarchy@bloomberg.net;Andy Hoffman in Geneva at ahoffman31@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, Dylan Griffiths, Liezel Hill

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