DBRS Morningstar Downgrades Sherritt International Corporation’s Issuer and Unsecured Debt Ratings to Selective Default/Default

DBRS Limited (DBRS Morningstar) downgraded Sherritt International Corporation’s (Sherritt or the Company) Issuer Rating to Selective Default (SD) and Senior Unsecured Debt rating to Default (D). The downgrades follow Sherritt’s announcement of a proposed transaction that involves, among other things, (1) exchanging Sherritt’s existing note obligations in the aggregate principal amount of approximately $588 million, along with all accrued and unpaid interest, for a new issue of approximately $319 million 8.50% Second Lien Notes maturing in 2027 and (2) exchanging Sherritt’s Ambatovy Joint Venture partner loans of approximately $145 million, plus accrued and unpaid interest, for either its remaining 12% equity interest in the joint venture or amended loans with no further recourse to Sherritt. This transaction would reduce the Company’s total outstanding principal debt obligations by approximately $414 million, resulting in approximately $19 million in lower annual cash interest payments.

The proposed transaction does not affect any other obligations of the Company, and Sherritt will continue to satisfy its obligations to employees, suppliers, customers, and governmental authorities in the ordinary course of business. As a result, DBRS Morningstar views the proposed transaction as SD based on the assumption of approval and that the terms of the exchange are disadvantageous to its existing note holders, qualifying as a distressed exchange, resulting in the downgrade to D for the Senior Unsecured Debt. Additionally, DBRS Morningstar discontinued Sherritt’s Recovery Rating.

The proposed transaction will be implemented through a corporate Plan of Arrangement in proceedings commencing February 26, 2020, by Sherritt and its subsidiary, 11722573 Canada Ltd., under the Canada Business Corporations Act. The Company is offering existing noteholders a cash amount equal to 3% of the principal amount of their notes based on early consent to the transaction by March 27, 2020. Noteholders consenting after the early consent date will not receive the cash consideration. Subject to noteholders approval, the existing notes will be exchanged for Second Lien Notes as part of the expected completion of the proposed transaction by the end of April 2020. DBRS Morningstar will continue to monitor the progress of the proposed transaction ahead of rating the new Second Lien Notes if and when the proposed transaction is successfully completed.

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

The principal methodologies are Rating Companies in the Mining Industry (August 2019), DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (August 2019), and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationship (November 2019), which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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