DBRS Places Sherritt International Corporation Under Review with Negative Implications

DBRS Limited (DBRS) has today placed the Issuer Rating and Senior Unsecured Debt rating of Sherritt International Corporation (Sherritt or the Company), both rated B, Under Review with Negative Implications following the Company’s announcement of executing Support Agreements with institutional holders of approximately 44% of Sherritt’s senior unsecured debentures (the Notes) to extend maturities. The ratings actions reflect DBRS’s concerns that the decision to seek these extensions has been driven more by necessity than by opportunity. This coincides with the recent release of the Company’s Q1 2016 results that show losses from operations at all of Sherritt’s principal operating segments, raising further doubts about the Company’s prospects.

Management is proposing to extend the maturities of its 2018, 2020 and 2022 senior unsecured debentures to 2021, 2023 and 2025, respectively, with the applicable interest rates and existing covenants under the governing note indenture, which remains unchanged. The Company is offering the following choice of consent consideration:

-- A cash payment of 2% of the principal amount of Notes held by the Noteholder or
-- 73.25 common share purchase warrants per $1,000 of principal amount of Notes held with a five-year term and exercise price of $0.74 per warrant based on five-day weighted-average trading price for the period ended May 30, 2016.

Approval by 66 2/3% of the Noteholders is expected to be required under the proposed transaction in order to change any terms of the Notes. The Company has already obtained the support of institutional Noteholders holding approximately 44% of the outstanding principal amount and expect to receive the support of the remaining Noteholders at the Noteholder Meeting expected in July 2016. Additionally, implementation of the plan is subject to such approvals as may be required by the Ontario Superior Court of Justice (the Court) or the Toronto Stock Exchange and Court approval of the Plan of Arrangement and receipt of all necessary regulatory approvals.

The timing of the move to extend the debt maturities follows the recent release of Q1 2016 results that included a reported loss of $47.8 million as the Company continues to suffer from the ongoing depressed markets for its principal commodities, nickel and oil, and posted losses from operations for its Metals, Oil and Power segments. With the consensus outlook for nickel remaining tepid at best over the next few years, it’s unclear what the catalysts would be for Sherritt’s financial performance to significantly improve over that timeframe.

DBRS will monitor the Company and expects to await the outcome of the Noteholders vote before resolving the Under Review status.

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

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, Rating Companies in the Oil and Gas Industry and DBRS Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on our website under Methodologies.