DBRS Comments on Termination of Potential Offer to Purchase Noranda Income Fund

DBRS notes today that Noranda Income Fund (the Fund) has announced that Xstrata Canada Corporation (Xstrata Canada) has provided notice that it is terminating the exclusivity agreement entered into between Xstrata Canada and the Fund announced on July 30, 2010. In the announcement, the Fund indicated that Xstrata Canada had increased its original indicative offer price from $3.40 to $3.90 per priority unit of the Fund. Nonetheless, Xstrata Canada and the Fund could not come to an arrangement for Xstrata Canada to acquire the Fund’s priority units, leading to Xstrata Canada’s termination of the exclusivity agreement. In its announcement of the termination of the agreement, the Fund indicated that the termination “will allow the Fund to enter into refinancing arrangements, which was otherwise prohibited during the exclusivity period. The Fund expects to have completed the refinancing in advance of the maturity of the Fund’s outstanding debt.”

DBRS views that the robust business model of the Fund, based upon a long-term concentrate supply agreement to 2017 with Xstrata Canada, supports our view that the Fund’s refinancing efforts will be successful.

We do remain concerned that the time available to complete the effort is diminishing (the revolving credit facility of the Fund’s wholly owned subsidiary Noranda Operating Trust (Noranda Trust) matures November 3, 2010, and Noranda Trust’s Senior Secured Notes mature December 20, 2010). Also, the intent of a group of unitholders to requisition a special meeting of the unitholders of the Fund to consider removing from office all of the independent trustees (see DBRS news release dated August 31, 2010) adds to our concerns over the tightening time frame to effect the refinancing of Noranda Trust’s debt facilities.

DBRS is maintaining the Fund’s STA-5 (low) stability rating Under Review with Negative Implications and the rating of Noranda Trust’s Senior Secured Notes at BBB with a Stable trend, pending progress on the refinancing efforts. A protracted lack of progress on the refinancing efforts could lead to negative rating actions.

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

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.