DBRS Comments on the Launch of Sherritt Finance Plans

DBRS has today noted that Sherritt International Corporation (Sherritt or the Company), rated BB (low) with a Negative trend, has announced its plans to repurchase by tender up to $400 million total of its outstanding senior unsecured notes maturing in 2018 and 2020, as well as to issue up to $300 million of new senior unsecured notes to mature in 2022 and use the proceeds from that issue to repay all of its $275 million of senior unsecured notes maturing in 2015 for a net reduction in debt outstanding of about $375 million before transaction costs (about 30% of Sherritt’s non-Ambatovy-related debt outstanding at June 30, 2014).

Sherritt’s financing plans are contingent upon a number of conditions, including receipt of consents to certain covenant changes from holders of not less than 66 2/3% of the principal amount of each of the outstanding 2018 and 2020 senior unsecured notes, minimum tender amounts of each of these debentures and the successful completion of the offering of the 2022 senior unsecured notes.

If completed successfully, DBRS views Sherritt’s financing efforts as an appropriate use of a large portion of proceeds from the sale of its Coal unit, completed in April 2014, and a prudent reduction and smoothing of the maturity profile of Sherritt’s long-term debt, given the challenges the Company faces bringing its important Ambatovy mine development project to successful completion in an era of volatile commodity prices. The successful completion of the financing efforts announced today will only be one factor that will contribute to the stabilization of the Negative trend of the Company’s ratings, and in itself, is not expected to result in a rating change.

In May 2014, DBRS downgraded Sherritt’s ratings to their current level and instituted a Negative trend following the completion of the sale of its Coal unit, then confirmed those ratings and the Negative trend in August 2014. At that time, DBRS indicated, “successful refinancing of Sherritt’s senior unsecured notes and completion of the Ambatovy project (including Ambatovy’s senior debt becoming non-recourse), along with preservation of sufficient liquidity, can be expected to return the trend to Stable; otherwise further rating downgrades may be in order.” (See “DBRS Confirms Sherritt International Ratings BB (low), Negative Trend,” August 26, 2014.) The financing efforts announced today are considered by DBRS as an appropriate use of a portion of the Coal unit sale proceeds and prudent steps in the Company’s refinancing efforts.

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

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