Moody’s rates Atlas Iron

The Pak Banker - - Front Page -


Global rat­ing agency Moody's to­day as­signed a first time B2 cor­po­rate fam­ily rat­ing to Atlas Iron Ltd ("Atlas"). At the same time, Moody's has as­signed a pro­vi­sional (P)B2 se­nior se­cured rat­ing to the pro­posed US$325 mil­lion se­nior se­cured Term Loan Fa­cil­ity en­tered into by Atlas Iron Lim­ited and Atlas Amer­ica Fi­nance, Inc., a 100% owned and guar­an­teed sub­sidiary of Atlas.

This is the first time that Moody's has as­signed rat­ings to Atlas. The out­look on the rat­ings is sta­ble. The as­sign­ment of a de­fin­i­tive rat­ing to the Se­nior Se­cured Term Loan is sub­ject to re­view of the fi­nal doc­u­men­ta­tion, and to suc­cess­ful close of the trans­ac­tion. The pro­ceeds of the is­suance will be used for gen­eral cor­po­rate pur­poses, which Moody's ex­pects will in­clude fund­ing the com­pany's growth ini­tia­tives.

Atlas' B2 cor­po­rate fam­ily rat­ing re­flects the com­pany's prod­uct, ge­o­graphic and op­er­a­tional con­cen­tra­tion, its small scale and short re­serve life, says Matthew Moore, a Moody's As­sis­tant Vice Pres­i­dent An­a­lyst. The rat­ing also re­flects the sig­nif­i­cant cap­i­tal spend­ing re­quired to grow its pro­duc­tion pro­file over the next two years, and the po­ten­tial for ex­e­cu­tion chal­lenges sur­round­ing its var­i­ous projects un­der devel­op­ment, Moore adds.

The rat­ing is sup­ported by Atlas' mod­er­ate cost po­si­tion and im­prov­ing track record of pro­duc­tion and project ex­e­cu­tion.

"The com­pany is un­der­go­ing a sig­nif­i­cant ca­pac­ity ex­pan­sion that will see pro­duc­tion more than dou­bling to over 12 mil­lion tons per an­num over the next 24 months," Moore says, adding, "the higher pro­duc­tion, if achieved as planned, will strengthen Atlas' po­si­tion in the rat­ing and could sup­port a higher rat­ing, de­pend­ing on the op­er­at­ing en­vi­ron­ment and the com­pany's busi­ness strat­egy and fi­nan­cial pol­icy at that time."

Atlas' mar­gins and credit met­rics are highly sus­cep­ti­ble to changes in the iron ore price. We es­ti­mate that EBITDA per tonne (t) un­der a $100-110 iron ore price (62% Fe con­tent) will be range around $10-20/t for the fis­cal year end­ing 30 June 2013, leav­ing lim­ited cush­ion in the event of a ma­te­rial and sus­tained drop in iron ore price be­yond th­ese lev­els.

Un­der our base case pric­ing range of 100-110/t iron ore price (62% Fe con­tent), we ex­pect the com­pany to main­tain mod­er­ate fi­nan­cial lever­age for the rat­ing, with debt-toEBITDA peak­ing in the 3.5x to 4.5x range in FY 2013. The com­pany's rel­a­tively large cash bal­ances and solid liq­uid­ity pro­file fol­low­ing the re­ceipt of its Term Loan pro­ceeds also pro­vides sup­port for the rat­ing.

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