DBRS Comments on Sherritt International Corporation’s Dutch Auction and Equity Issue

DBRS Limited (DBRS) commented on Sherritt International Corporation’s (Sherritt or the Company; rated B with a Stable trend by DBRS) January 16, 2018, announcement of a Dutch auction to purchase up to $75 million of outstanding debentures (the Purchase Offer). The Purchase Offer includes the Company’s 8.000% Senior Unsecured Debentures due in 2021, 7.500% Senior Unsecured Debentures due in 2023 and 7.875% Senior Unsecured Debentures due in 2025. The offers will be priced per $1,000 of principal amount, and eligible participants may either specify the minimum offer they are willing to receive or accept the Clearing Price determined by Sherritt based on the size of the offers received up to the maximum prices set by the Company for each series of notes. These maximum prices are $950 per unit, $900 per unit and $880 per unit of $1,000 of principal amount for the 2021, 2023 and 2025 maturities, respectively. The tender period commenced this morning and extends to 5 p.m. Eastern Standard Time on February 13, 2018, unless extended or truncated under the terms of the Company’s Purchase Offer.

Concurrent with the Dutch auction, the Company announced a Unit Offering of $115 million, with each unit consisting of one common share and half of one common share purchase warrant. The unit price is $1.40 per unit, with the exercise price of one whole warrant at $1.95 per share for up to 36 months following the closing of the offering. The common shares to be received per warrant will be linked to the price of cobalt with a price of USD 34.99 per pound or less, entitling a warrant holder to 1.00 Sherritt common share per warrant. At higher cobalt prices of up to USD 55.00 per pound, warrant holders would be entitled to as much as 1.25 common shares per warrant. The London Metal Exchange spot cobalt price was USD 34.86 per pound on January 16, 2018. The proceeds of the Unit Offering will be used to fund the Dutch auction as well as for general corporate purposes and to fund future growth initiatives.

As at September 30, 2017, Sherritt had $813 million in debt outstanding, excluding its non-recourse Ambatovy partner loans of $1,325 million. As a result, DBRS expects that a reduction of $75 million in principal debt outstanding and the related interest payments would improve the Company’s credit metrics to be more consistent with the current ratings.

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

The principal methodology is Rating Companies in the Mining Industry (August 2017), which can be found on dbrs.com under Methodologies.

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