DBRS Finalizes Provisional BB (low) Rating on Sherritt $250 Million Debt Issue, Negative Trend

DBRS has today finalized its provisional rating of the $250 million aggregate principal amount of Senior Unsecured Debt (the New Notes) issued by Sherritt International Corporation (Sherritt or the Company) at BB (low) with a Negative trend. The New Notes will pay interest at a rate of 7.875%, payable semi-annually and will mature October 11, 2022. DBRS provisionally rated the New Notes on September 30, 2014 (see “DBRS Assigns Provisional BB (low) Rating to Sherritt New Debt Issue, Negative Trend”). The New Notes are issued pursuant to a final Offering Memorandum dated October 3, 2014, that is consistent with the preliminary offering memorandum for the New Notes dated September 29, 2014.

The New Notes were issued as part of a financing plan announced on September 11, 2014, in conjunction with the redeployment of 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 is expected to use the net proceeds of the issuance of the New Notes and cash on hand to redeem all of its outstanding 7.75% senior unsecured notes due October 15, 2015, including paying related premiums and accrued and unpaid interest.

The issuance of the New Notes was 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, which have been completed.

With the issuance of the New Notes and the expected completion of the redemption of Sherritt’s outstanding $275 million principal amount of 7.75% senior unsecured notes due October 15, 2015, Sherritt will have successfully completed the Company’s financing efforts launched in September 2014.

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.)

Sherritt’s ratings continue to have Negative trends as the Company works toward completion of the Ambatovy project (including Ambatovy’s senior debt becoming non-recourse) and the preservation of sufficient liquidity in the face of currently challenging nickel, cobalt and oil markets. DBRS can be expected to return the trend of Sherritt’s rating to Stable if Ambatovy can be completed to expectations and if liquidity can be maintained, otherwise further rating downgrades may be in order.

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.

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