http://www.mineweb.com/mineweb/view/...
Teck bond issue a sign credit markets on mend
A $4.2 billion bond issue announced by Teck Resource this week is not only another milepost to the healing of the debt-heavy miner, but may also be a signal that credit markets are on the mend.
Author: Cameron French
Posted: Friday , 08 May 2009
TORONTO (Reuters) -
A hefty high-yield bond issue announced by Teck Resources this week marks a return from the brink of disaster for the debt-heavy miner and is another sign that credit markets are on the mend after last year's near freeze-up.
Given up for dead by some after borrowing $9.8 billion for a top-of-the-market purchase of Fording Canadian Coal Trust last year, Teck will use the $4.2 billion issue to almost completely erase a $5.8 billion bridge loan that has been hanging around its neck since metals prices tanked last fall.
The debt is not cheap, with interest rates of 9.75 percent to 10.75 percent in five, seven, and ten-year tranches, but the fact that a miner with a shaky credit rating can raise such a large amount suggests billions of dollars in international government efforts to thaw markets is taking hold.
"Call it a milepost along the road to healing," said Ernie Lalonde, senior vice-president of mining at debt-rating agency DBRS, which downgraded Teck's debt in February due to its lack of progress at that point in reducing its debt levels.
"We're not out of the woods yet, but being able to go to the high-yield market and raise the level of funds Teck has, that's a sign that there's is some comfort with the direction the general global economy is headed in," Lalonde said.
He said, however, it could be some time yet before available credit trickles down to junior miners that have been starved by nervous lenders and weak commodity prices.
BACK FROM THE BRINK
For Teck, which last month changed its name from Teck Cominco to reflect an increasingly diversified resource base, the deal should help revive a company that had been living in survival mode since last fall.
Once primarily a zinc miner with billions on the balance sheet, Teck paid nearly $14 billion last year for Fording, which gave it full control of the Elk Valley Coal Partnership, a top producer of metallurgical coal.
While the market initially lauded the deal, the timing proved disastrous, as prices of copper and zinc quickly slid into free-fall, while coal demand dried up, wiping out cash flows that Teck had planned to use to pay off the debt.
Credit markets, meanwhile, froze up, derailing plans to finance the deal through bond offerings, and forcing Teck to cut costs and embark on a sale campaign that for a while seemed like it might strip Teck of some of its best assets.
Now, after enduring a 90 percent stock drop last year and brief worries about whether the company would remain solvent, Teck's immediate concern is a relatively small $603 million in remaining bridge debt, which the company confirmed on Thursday it intends to pay off this year.
Teck's shares have risen 75 percent since Teck began the wheeling and dealing on the debt two weeks ago and have quadrupled after bottoming in early March.
"When (the stock) was down at C$3 it was doom and gloom and nothing was going to work for them, and now people can't give them enough money, it's really quite surprising," said John Kinsey, a portfolio manager at Caldwell Securities.
Paying off the bridge loan will allow Teck to shift its focus to its $4 billion in term debt, and give it the time to wait for better offers for the assets it expects to sell.
The company has been selling its gold assets -- a long-held plan -- and has also pledged to sell 20 percent of Elk Valley. It is also considering selling its 20 percent stake in the Fort Hills oil sand project, which carries with it billions in future funding obligations.
But other potential sales have already been taken off the table, particularly Teck's 22.5 percent stake in the profitable Antamina copper mine in Chile, Teck said this week.
John Hughes, an analyst at Desjardins Securities, estimates a sale of a 20 or 30 percent of the coal assets could yield proceeds of $2-$3 billion, which take a big bite out of the term debt, which is due in 2012.
He also said Teck could raise as much as $500 million by selling a stake in the Waneta Dam hydroelectric facility in British Columbia, which generates power for the Trail smelter.
"Certainly the financial whole they dug themselves in to, they've largely dug themselves out of," he said. (Editing by Frank McGurty)
