DBRS Assigns Provisional BB (high) Rating to Noranda Operating Trust’s Senior Secured Notes

DBRS has today assigned a provisional rating of BB (high) with a Stable trend to the $90 million of 6.875% senior secured notes (Senior Secured Notes) due 2016 to be issued by Noranda Operating Trust (the Trust) by way of a private placement offering in the Canadian debt capital markets as part of a program to provide long-term financing for the Trust. The Trust is currently being financed under the auspices of an interim $220 million bridge credit facility, maturing on December 2, 2011. It has executed a commitment letter for and is pursuing a five-year asset-based secured revolving credit facility for up to $150 million that requires the Trust to concurrently arrange term debt financing of at least $90 million. DBRS views the Senior Secured Notes to be issued as part of the Trust’s long-term refinancing. The Senior Secured Notes will be used for partial repayment of the existing bridge loan and for general corporate purposes.

The Senior Secured Notes, maturing December 28, 2016, will amortize on a straight-line basis, with semi-annual repayments of principal and interest, to a $15 million balloon payment at maturity. They will be secured by a first lien on specified property, plant and equipment not subject to first-lien security under the asset-based revolving credit facility and by a second lien on those assets subject to first-lien security under the asset-based revolving credit facility (largely specified working capital). The Senior Secured Notes will be fully and unconditionally guaranteed, on a senior secured basis (subject to the terms of an intercreditor agreement with the lenders under the new asset-based credit facility), by the Noranda Income Fund (the Fund), Canadian Electrolytic Zinc Limited, Noranda Income Limited Partnership and NILP General Partner Ltd.

Under the trust indenture to be entered into in connection with the Senior Secured Notes, the Trust and the Fund will be permitted to distribute excess cash flows to their unitholders subject to compliance with certain financial covenants and other customary restrictions.

The rating rationale for the provisional rating for the Senior Secured Notes is consistent with the rationale with the Trust’s BB (high) Issuer Rating, published July 7, 2011 (see “DBRS Downgrades Noranda Operating Trust Ratings to BB (high), Stable Trend”) and reflects in part the higher level of uncertainty the Trust faces as a result of what DBRS perceives as a declining level of formal and informal support of the Trust by Xstrata Canada Corporation (Xstrata Canada), the conflict between the call for distributions by unitholders of the Fund and the need to prepare the Trust’s financial structure for significant changes or even a possible end of the supply and processing agreement with Xstrata Canada in May 2017, the expected increased income tax burden on the Trust and the level of competitiveness of the CEZinc facility in the zinc refining market post May 2017

The provisional rating is based on information provided by the Trust up to and including today’s date, including and the Trust’s draft offering memorandum dated July 22, 2011; the public disclosure documents of the Fund; and other materials. The Senior Secured Notes are subject to customary closing conditions. Closing is expected to occur on or about July 28, 2011. The assignment of a final rating to the Senior Secured Notes is subject to receipt by DBRS of final documentation that is consistent with that which DBRS has already reviewed.

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

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