DBRS Comments on Noranda Refinancing Efforts

DBRS notes today that Noranda Income Fund (the Fund) has mailed a notice of meeting and management information circular (the Fund Circular) and related materials in connection with the special meeting of unitholders of the Fund to be held on November 15, 2010. The Fund Circular and the accompanying news release provide valuable insight into the efforts being taken to refinance the revolving credit facility of the Fund’s wholly owned subsidiary Noranda Operating Trust (Noranda Trust), which matures November 3, 2010, and Noranda Trust’s Senior Secured Notes, which mature December 20, 2010.

In the materials released today, the Fund acknowledges that certain matters have delayed the efforts to refinance Noranda Trust’s credit facilities and Senior Secured Notes, including:

(1) The resignation of the Fund’s independent trustees in September 2010 and the time required to appoint new independent trustees.

(2) The requisitioning of a special meeting by unitholders.

(3) The need to consider the discussion of an offer to purchase the priority units of the Fund by Xstrata Canada Corporation (Xstrata Canada; rated A (low) by DBRS).

(4) The need for the Fund to consider its structure in light of upcoming tax changes.

The maturity dates of Noranda Trust’s debt instruments continue to draw closer and the risk of events unfolding that could delay the refinancing remains, increasing our level of concern. DBRS believes Noranda Trust continues to have a range of options to address its refinancing efforts, including seeking further extensions of maturity dates. We are also encouraged by the Fund’s appointment of four new independent trustees, which can be expected to aid moving the refinancing project forward. Nonetheless, a protracted lack of progress on the refinancing efforts could lead to negative rating actions with respect to Noranda Trust’s BBB-rated Senior Secured Notes and the Fund’s STA-5 (low) stability rating, both of which we continue to maintain Under Review with Negative Implications.

In the information circular released today, the Fund highlights the security provided by Xstrata Canada and other wholly owned indirect subsidiaries of Xstrata Canada with respect to the short-term credit facility and the Senior Secured Notes of Noranda Trust. This support by Xstrata Canada and its related entities and the long-term concentrate-processing agreement to 2017 with Xstrata Canada utilizing the Fund’s CEZinc facility in Québec have underpinned DBRS’s BBB rating of Noranda Trust’s Senior Secured Notes (now Under Review with Negative Implications). The continued existence of the support plays an important role in our view that Noranda Trust’s existing debt can successfully be refinanced.

The concerns raised above are consistent with DBRS’s opinions expressed in its September 13, 2010, rating decision to place the BBB rating of the Senior Secured Notes of Noranda Trust Under Review with Negative Implications. We retain our view of the robust business viability of the Fund’s CEZinc facility. However, we remain concerned about the lack of visible progress Noranda Trust has been able to demonstrate in achieving its refinancing needs.

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