Moody’s rates Atlas Iron
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.