DBRS Downgrades BHP Billiton Issuer Ratings and Discontinues Commercial Paper Ratings

DBRS has today downgraded the Issuer Ratings of BHP Billiton Ltd. and BHP Billiton plc (collectively, BHP Billiton or the Group) to A (high) from AA (low) with Stable trends, and has also downgraded the Commercial Paper ratings of the Group to R-1 (low) from R-1 (middle). The Commercial Paper ratings of BHP Billiton Ltd. and BHP Billiton plc have subsequently been discontinued. All ratings have been removed from Under Review with Negative Implications

The downgrade of the Group’s ratings primarily reflects the presence of what DBRS views as generally heightened credit risks in the mining sector brought on by concerns over the strength of growth in the Chinese economy, only moderate growth in the United States and ongoing uncertain financial stability in Europe.

In addition, the Group’s net earnings (before items considered non-recurring by DBRS) and its operating cash flow peaked at record levels in the year ending June 30, 2011 (FY2011), driven by higher output of certain products and the very high commodity prices of the day (including iron ore, copper, petroleum and coal). Earnings and cash flow declined materially in FY2012 and FY2013 as commodity prices dropped on widespread overcapacity in the mining sector. Combined with an almost five-fold increase in net debt from the end of FY2011 to the end of FY2013 related to high capital expenditures, acquisitions and declining operating cash flow, the Group’s credit metrics have deteriorated although they remain adequate for its ratings.

The Group’s net debt levels and credit metrics largely stabilized in the first half of FY2014 despite ongoing weakness in commodity prices. It has recognized the uncertainties and volatility of near- to medium-term commodity markets, making a number of changes to its management and to its expenditure plans, with a sharper focus on operating and capital productivity. The Group has substantially reduced capital expenditures in H1 FY2014 from the high levels of FY2013 and is expected to continue to do so while indicating it will seek to maintain a solid “A” credit rating and a progressive dividend. In addition, the Group is expected to continue to simplify its asset portfolio through dispositions. Collectively, these actions are expected to help BHP Billiton to better face the cash flow pressures of weakening commodity prices.

BHP Billiton remains the top-rated company in the DBRS mining universe as a result of its well-diversified and competitive operations and solid financial profile.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Companies in the Mining Industry (Primary) and Rating Companies in the Oil and Gas Industry (Secondary), which can be found on our website under Methodologies.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.