DBRS Comments on Sherritt International Corporation Joint Venture Restructuring

DBRS Limited (DBRS) today notes that, on May 1, 2017, Sherritt International Corporation (Sherritt or the Company; rated B with a Stable trend by DBRS) announced an agreement-in-principal with Sumitomo Corporation and Korea Resources Corporation (together, the Partners), for the restructuring of their Ambatovy joint venture (JV). Under the agreement, Sherritt will reduce its equity interest in Ambatovy to 12% from 40% in return for the Partners’ agreement to eliminate the non-recourse JV Additional Partner Loans that totalled $1.357 billion at the end of Q1 2017 (compared with $1.284 billion at the end of Q3 2016). As a result, the Company would resume funding of its remaining 12% interest retroactively to the end of 2015, resulting in an approximate USD 24 million payment to the Partners. Sherritt would also escrow approximately USD 23 million to satisfy 12% of potential future funding requirements or repay a portion of the Ambatovy JV Partner loans at maturity.

The parties will continue to advance the discussions toward a binding and definitive agreement; however, DBRS views the agreement as neutral to the Company’s business risk profile as Sherritt uses the equity accounting method for its Ambatovy investment. As such, Sherritt’s reduced interest does not affect its cash flow from operations, EBITDA or EBIT. While the elimination of the non-recourse JV loans would result in a modest improvement in several of the Company’s key credit metrics, DBRS notes that these metrics would then be more consistent with the current rating.

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

The principal methodology is Rating Companies in the Mining Industry (September 2016), which can be found on dbrs.com under Methodologies.