DBRS Confirms Teck Resources and Revises Recovery Rating

DBRS has today confirmed the Issuer Rating of Teck Resources Limited ( Teck or the Company) at BB (high) and its Senior Secured Notes at BBB (low). The trends are Stable. DBRS has also revised the recovery rating of Senior Secured Notes from RR3 to RR1. This rating action reflects the reduction in Teck’s net outstanding debt from $12.0 billion at December 31, 2008, to $10.5 billion at June 30, 2009, and the further near-term debt reduction as a result of the Company’s July 2009 $1.7 billion equity issuance and the expected $825 million in proceeds from the pending sale of a one-third interest in the Company’s Waneta Dam power station. DBRS has simulated a default scenario for Teck in order to analyze the potential recovery of the Company’s debt in the event of default, resulting in an expected recovery of 90% to 100%, which corresponds to a recovery rating of RR1. Under the DBRS Rating Methodology for Leveraged Finance, which is used for entities that have a non-investment-grade issuer rating, the Senior Secured Notes rating remains unchanged at BBB (low).

The default scenario assumes a further deterioration in commodity prices in 2010, in particular a reduction in export coal prices for the 2010–2011 coal year, and Teck’s inability to access additional new funding sources or achieve meaningful asset sales. In this scenario, the Company would violate covenants of its credit facilities in the fall of 2010 and it is further assumed lenders no longer advance funds to the Company, which would result in default. The analysis recognizes the reduction in Teck’s outstanding debt below June 30, 2009, levels due to the Company’s equity issuance, which has already been used to reduce debt, and the anticipated proceeds from the Waneta Dam sale, which is expected to be received before the assumed default date.

In its analysis, DBRS assumed the Company would be reorganized as a going concern following the event of default. DBRS has also assumed in its recovery analysis that Teck’s revolving credit facilities, Senior Secured Notes and bridge and term facilities related to the October 2008 acquisition of Fording Canadian Coal Trust (Fording) rank pari passu. In addition, of Teck’s current debt instruments, only the Antamina senior revolving credit facility ($108 million at June 30, 2009) and other debt ($133 million of largely capital leases at June 30, 2009) are considered ranking ahead of the Company’s Senior Secured Notes and other pari passu debt.

Based on the estimated amount of debt outstanding and the ranking of Teck’s debt instruments at the time of default, DBRS has forecast the economic value of the enterprise using a five times multiple of normalized EBITDA to derive a forecast recovery for holders of the Senior Secured Notes. Accordingly, DBRS has assigned a recovery rating of RR1 to the Senior Secured Notes, which corresponds to a forecast recovery of between 90% and 100% of principal amounts. Under the revised DBRS Rating Methodology for Leveraged Finance, the rating of the Senior Unsecured Notes is capped at BBB (low) for an issuer rated BB (high).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Mining and DBRS Rating Methodology for Leveraged Finance, which can be found on our website under Methodologies.

This is a Corporate rating.