DBRS Maintains Noranda UR-Dev on Revolving Credit Facility Announcement

DBRS notes that today Noranda Income Fund (the Fund) has announced that Noranda Operating Trust (the Trust) has executed a commitment letter by way of which lenders have agreed to provide the Trust with a five-year secured asset-based revolving credit facility in the amount of up to $150 million. DBRS placed the Trust’s BBB Issuer Rating Under Review with Developing Implications on December 3, 2010, following the Fund’s announcement that the Trust had obtained a bridge financing facility to provide funds for the repayment of its senior unsecured notes at their maturity in December 2010 and to also provide financing for ongoing working capital and other financing needs (see the DBRS press release published December 3, 2010 – DBRS Revises Noranda Ratings on Signing of Bridge Facility).

DBRS views today’s announcement by the Fund as an important step in establishing a more permanent financing structure. However, in light of the fact that the Fund is expected to have a need for funding in addition to the $150 million revolving credit facility and also that the new revolving credit facility is not expected to close until August 2011, DBRS will maintain the Trust’s BBB Issuer Rating Under Review with Developing Implications until the additional aspects of the Trust’s financing structure become available.

The Trust had debt outstanding at December 31, 2010, of approximately $191 million, which DBRS expects has been reduced through operating cash flows in 2011. Nonetheless, DBRS expects that the Trust will need to secure financing in addition to the $150 million revolving credit facility.

The Trust currently is financing its operations under the auspices of the reducing $250 million bridge loan facility, which extends to December 1, 2011. The bridge facility is secured by the assets of the Fund, the Trust, Noranda Income Limited Partnership and Canadian Electrolytic Zinc Limited and is supported by Xstrata Canada Corporation (Xstrata Canada) through the reaffirming of the credit support Xstrata Canada had provided under the Trust’s old credit facilities and now-repaid senior secured notes. The terms of the bridge facility restrict the Fund and its subsidiaries in several respects, including the ability to make distributions or redeem or repurchase units. DBRS views the Trust as adequately financed under the bridge facility, but it will need to be replaced on a timely basis.

DBRS retains its view of the robust business viability of the Fund’s CEZinc facility in Québec under the terms of its zinc concentrate supply and processing agreement with Xstrata Canada.

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.