DBRS Comments on Noranda Loan Extension

DBRS notes today that Noranda Income Fund (the Fund) has announced that Noranda Operating Trust (the Trust) has agreed to extend the maturity date of its existing short-term credit facility from November 3, 2010, to December 3, 2010. The maximum amount to be drawn under the facility will be reduced during the extension period from $120 million to $100 million (the amount drawn under the facility at September 30, 2010, was about $32 million). DBRS views the extension of the Trust’s short-term credit facility as an important step in providing an interim solution to refinancing the facility over the longer term and in resolving the Trust’s need to meet its obligations when the Trust’s $153.5 million principal amount of Senior Secured Notes matures December 20, 2010. Nonetheless, a protracted delay in the Trust’s refinancing efforts could lead to negative rating actions with respect to the Trust’s BBB-rated Senior Secured Notes and the Fund’s STA-5 (low) stability rating, both of which DBRS continues to maintain Under Review with Negative Implications, where they were placed on September 13, 2010, and April 20, 2010, respectively.

The extension of the Trust’s short-term credit facility remains subject to the satisfaction of certain closing conditions, which DBRS believes will be achieved. The actual amount available under the short-term credit facility remains tied to the level of the Fund’s inventory and accounts receivables from the previous quarter and, in DBRS’s view, remains adequate to fund working capital requirements for the Fund and the Trust. Distributions to unitholders by the Fund will continue to be prohibited during the extension period.

DBRS views the extension of the Trust’s short-term credit facility as a solid indication the Trust’s committee of four newly appointed independent trustees is functioning in its efforts to arrive at refinancing solutions for the Trust’s short- and long-term debt obligations. The extension provides the Trust with some needed time to put these solutions in place. However, the newly appointed independent trustees will face ousting by unitholders at a special meeting of unitholders of the Fund to be held on November 15, 2010. DBRS views that an additional change in independent trustees of the Fund as a result of the special meeting could further delay and complicate the Trust’s refinancing process (see the DBRS press release published October 20, 2010, on the refinancing efforts).

We retain our view of the robust business viability of the Fund’s CEZinc facility in Québec. However, we remain concerned about the shrinking time frame the Trust has to achieve its refinancing needs.

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