DBRS Morningstar Places Sherritt International Corporation Under Review with Positive Implications Following Completion of Debt Exchange; Discontinues and Withdraws Rating on Existing Notes

DBRS Limited (DBRS Morningstar) placed Sherritt International Corporation’s (Sherritt or the Company) Issuer Rating (currently rated SD) Under Review with Positive Implications following the Company’s completion of its Balance Sheet Initiative (the Transaction) on August 31, 2020 (the Effective Date), which was implemented pursuant to a plan of arrangement under the Canada Business Corporations Act. DBRS Morningstar also discontinued and withdrew its rating on Sherritt’s Senior Unsecured Debt due in 2021, 2023, and 2025 (the Existing Notes), which was extinguished as part of the Transaction.

The Transaction resulted in Sherritt exchanging its Existing Notes with an aggregate principal amount of $588 million, together with all accrued and unpaid interest, for (1) new 8.50% second-lien secured notes due in 2026 (the New Second-Lien Notes) with an aggregate principal amount equal to 54% of the principal amount of, as well as all accrued and unpaid interest on, the Existing Notes up to but excluding the Effective Date; (2) new 10.75% unsecured notes due in 2029 (the New Junior Notes) with an aggregate principal amount of $75 million; and (3) an early consent cash consideration of approximately $15 million.

Based on the Effective Date, the aggregate amount of the New Second-Lien Notes is approximately $357 million which, combined with the New Junior Notes of $75 million, resulted in (1) reduced loans and borrowings with respect to the Company’s debenture obligations by approximately $156 million; and (2) extended the maturity date to 2026 for the New Second-Lien Notes and 2029 for the New Junior Notes from the maturity dates of 2021, 2023, and 2025 for the Existing Notes.

Additionally, as part of the Transaction, Sherritt agreed to exchange its remaining 12% interest in and loans receivable from the Ambatovy Joint-Venture (Ambatovy JV) on a pro rata basis with its Ambatovy JV partners in return for the cancellation of its remaining Ambatovy JV partner loans plus all accrued and unpaid interest that totaled approximately $146 million as at August 31, 2020. The Company also gave up its operatorship of the Ambatovy JV as part of the Transaction and will now focus its mining activities on its 50%-owned Moa Joint Venture in Cuba.

Now that the Transaction has closed, DBRS Morningstar will aim to resolve the Under Review status on the Issuer Rating within three months, potentially incorporating the Company’s Q3 2020 results that will include the Transaction’s impact.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Companies in the Mining Industry (August 17, 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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