DBRS Assigns Provisional BB (low) Rating to Sherritt New Debt Issue, Negative Trend

DBRS has today assigned a provisional rating of BB (low) with a Negative trend to up to $300 million of Senior Unsecured Debt (the New Notes) that Sherritt International Corporation (Sherritt or the Company) has announced today that it intends to issue by way of private placement as part of a financing plan announced September 11, 2014, in conjunction with the redeployment the proceeds of the sale of the Company’s Coal unit (see “DBRS Comments on the Launch of Sherritt Finance Plans,” September 11, 2014). Sherritt intends to use the net proceeds of the issuance of the New Notes to redeem all of its outstanding 7.75% senior unsecured notes due October 15, 2015, including paying related premiums and accrued and unpaid interest, with any remaining proceeds to be used for Sherritt’s general corporate purposes.

The issuance of the New Notes is conditional upon the successful completion of the offers and solicitations of consent and the execution of the supplemental indenture following receipt of the requisite consents.

The New Notes will be senior unsecured obligations of Sherritt and will rank equally in right of payment with all existing and future senior unsecured indebtedness of the Company that is not expressly subordinated in right of payment to the New Notes and senior in right of payment to all existing and future indebtedness of the Company that is expressly subordinated to the New Notes. In addition, the New Notes will be unconditionally guaranteed, jointly and severally, by each of the Company’s wholly owned restricted subsidiaries that are not immaterial subsidiaries (as defined in the offering memorandum of the New Notes), other than Ambatovy Project Investments Ltd. and its subsidiaries, which holds Sherritt’s interest in the Ambatovy project in Madagascar. Each guarantee of the New Notes provided by a guarantor will be a senior unsecured obligation of the guarantor, will rank equally in right of payment with any existing and future senior unsecured indebtedness of such guarantor, will be senior in right of payment to any future subordinated obligations of such guarantor and will be effectively subordinated to all existing and future secured indebtedness of such guarantor, to the extent of the value of the assets of such guarantor securing such indebtedness.

The New Notes will be governed under the laws of the Province of Ontario, Canada.

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 issuance of the New Notes along with the Company’s plans to re-invest a significant amount of the net proceeds of the sale of its Coal unit to reduce the amount of its existing Senior Unsecured Debt outstanding are considered by DBRS to be appropriate steps in the Company’s refinancing efforts if completed successfully. Nonetheless, Sherritt continues to face the challenges of bringing its important Ambatovy nickel mine to a desired stable level of near-capacity production in a period of volatile metal prices. Accordingly, Sherritt ratings remain on a Negative trend.

Successful completion of the Company’s current financing efforts, including the repurchase of up to $400 million of its 2018 and 2020 Senior Unsecured Debt issues, the issuance of the New Notes, repurchase of its outstanding 7.75% senior unsecured notes due October 15, 2015, 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 of Sherritt’s rating to Stable, otherwise further rating downgrades may be in order.

DBRS will finalize the rating on the New Notes once the offering has been priced and a final offering memorandum consistent with our current understanding of the New Notes is filed.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Mining Industry (September 2014) and DBRS Recovery Ratings for Non-Investment Grade Corporate Issuers (March 2014), which can be found on our website under Methodologies.