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Global Credit Research - 29 Jan 2016
New York, January 29, 2016 -- Moody's Investors Service downgraded Noranda Aluminum Acquisition
Corporation's (Noranda) Corporate Family Rating and Probability
of Default Rating to Ca and Ca-PD from Caa1 and Caa1-PD
respectively. The senior secured term loan was downgraded to Ca
from Caa1 and the senior unsecured notes were downgraded to C from Caa3.
The Speculative Grade Liquidity rating was lowered to SGL-4 from
SGL-3. The outlook is negative.
..Issuer: Noranda Aluminum Acquisition Corporation
.... Probability of Default Rating,
Downgraded to Ca-PD from Caa1-PD
.... Speculative Grade Liquidity Rating,
Lowered to SGL-4 from SGL-3
.... Corporate Family Rating, Downgraded
to Ca from Caa1
....Senior Secured Bank Credit Facility,
Downgraded to Ca (LGD3) from Caa1 (LGD3)
....Senior Unsecured Regular Bond/Debenture,
Downgraded to C (LGD5) from Caa3 (LGD5)
....Outlook, Remains Negative
The downgrade of Noranda's CFR to Ca reflects their weak debt protection
metrics, high leverage, operational and cost challenges and
the headwinds facing primary aluminum producers, which are expected
to result in weaker performance over the next year. Midwest premiums
have also dropped to about $0.09/lb compared to the $0.25
it was roughly a year and half ago. For the twelve months through
September 30, 2015, leverage, as measured by the debt/EBITDA
ratio was 12.8x while EBIT/interest was -0.6x.
Given the further weakening in market conditions and operational challenges
in the fourth quarter of 2015 and continuing in 2016, we expect
Noranda's debt protection metrics to weaken further and leverage to increase.
Given fundamentals in the aluminum market, excess global aluminum
capacity and slowing growth rates in China, aluminum prices and
premiums are anticipated to remain pressured well into 2016 and the beginning
In addition, the company continues to face operational challenges.
On January 8th of this year, Noranda announced that production has
been idled at two of their three pot lines at its only aluminum smelter,
which is located in New Madrid, Missouri. While the company
believes it has sufficient sources of aluminum to meet customer commitments,
this further supports the downgrade, and heightens the risk of continued
operational losses. The financial impact is still uncertain at
this time. Additionally, Noranda Bauxite Limited, a
wholly owned subsidiary of Noranda Aluminum notified the GOJ that the
incident at this facility is an event of force majeure which will require
Noranda to materially reduce mining plans previously provided to GOJ.
The Ca senior secured term loan rating reflects its priority position
in the capital structure relative to the senior unsecured notes.
Borrowings under the term loan are secured on a first priority basis on
assets other than inventory and accounts receivables, which are
pledged on a first lien basis to the ABL ("ABL priority collateral").
The term loan has a second lien position on the ABL collateral.
The C rating on the senior unsecured notes reflects the effective subordination
of these instruments to a substantial amount of first lien secured debt
and priority accounts payables, and the expectation of a considerable
loss in value in a default scenario.
The SGL-4 speculative grade liquidity rating reflects the company's
poor liquidity position, which consists of $9 million cash
position at September 30, 2015, and borrowing base capacity
of $104 million under its asset backed credit facility expiring
in February, 2017. The contraction in aluminum prices,
should they decrease below current levels, will contribute to a
contraction in borrowing base availability.
The negative outlook incorporates our expectation that metrics will deteriorate
further in 2016 as the company's operating results are impacted by the
falling aluminum prices and premiums, and liquidity continues to
diminish. It also captures the possibility that, given the
weak market fundamentals, aluminum pricing will remain suppressed
over the intermediate term. The outlook also reflects the uncertainty
that Noranda is able to successfully improve stable performance at its
only remaining smelter.
Ratings are unlikely to be upgraded over the next twelve to eighteen months
given the expectations for weak performance and profitability.
Noranda's ratings could be downgraded if liquidity continues to deteriorate.
The principal methodology used in these ratings was Global Steel Industry
published in October 2012. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
Headquartered in Franklin, Tennessee, Noranda Aluminum Acquisition
Corporation (Noranda) is involved in primary aluminum production at its
New Madrid, Missouri smelter and in downstream operations through
four rolling mills. In addition, Noranda has a 100%
interest in an alumina refinery in Gramercy, Louisiana and through
its wholly owned subsidiary, St. Ann Bauxite Holdings Ltd.,
ultimately owns 49% of a bauxite mining operation in St.
Ann, Jamaica. During the twelve months ending September 30,
2015, Noranda generated revenues of $1.3 billion.
For ratings issued on a program, series or category/class of debt,
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credit ratings from the support provider's credit rating.
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disclosures in relation to the provisional rating assigned, and
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rating in a manner that would have affected the rating. For further
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respective issuer on www.moodys.com.
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for additional regulatory disclosures for each credit rating.
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Corporate Finance
Corporate Finance Group
Moody's Downgrades Noranda's ratings (CFR to Ca); Outlook negative
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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