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Rating Action:

Moody's assigns a Baa2 rating with a positive outlook to new senior unsecured notes issued by Xstrata

09 Nov 2011

London, 09 November 2011 -- Moody's Investors Service today assigned a Baa2 senior unsecured rating with a positive outlook to the new unsecured and unsubordinated notes issued on 3 November by Xstrata Finance (Canada) Limited, an indirect wholly-owned subsidiary of Xstrata plc. The notes, all US$ denominated, are organised in four tranches with different size, pricing and maturity: a $800 million 2.85% tranche due November 2014, a $700 million 3.60% tranche due January 2017, a $1 billion 4.95% tranche due November 2021 and a $500 million 6.00% tranche due November 2041. The new notes will be fully and unconditionally guaranteed on a senior, unsecured and joint and several basis by Xstrata plc and its main direct wholly-owned subsidiaries, Xstrata (Schweiz) AG, Xstrata Canada Financial Corporation and Xstrata Finance (Dubai) Limited. Proceeds of the notes issuance, equal to approximately US$ 3 billion in aggregate, will be used to repay existing financial debt with shorter maturity.

Assignments:

Issuer: Xstrata Finance (Canada) Limited

Senior Unsecured Regular Bond/Debenture, Assigned Baa2

Moody's also maintains the following ratings on Xstrata plc and its following affiliates:

Long-Term Issuer Rating (foreign currency) of Baa2

Xstrata Canada Corporation

BACKED Senior Unsecured (foreign currency) ratings of Baa2

Xstrata Finance (Dubai) Limited

BACKED Senior Unsecured MTN (foreign currency) ratings of (P)Baa2

Xstrata Finance (Canada) Limited

BACKED Senior Unsecured (foreign currency) ratings of Baa2

BACKED Senior Unsecured MTN (foreign currency) ratings of (P)Baa2

Xstrata Canada Financial Corp

BACKED Senior Unsecured (foreign currency) ratings of Baa2

BACKED Senior Unsecured MTN (foreign currency) ratings of (P)Baa2

RATINGS RATIONALE

The change of the outlook to positive from stable on the Baa2 senior unsecured ratings of Xstrata plc and its guaranteed subsidiaries on 18 March 2011 was prompted by Moody's appreciation of the progress made by Xstrata in strengthening its business and financial profile, particularly after recording positive results in 2010, which have contributed to further improve the Group's credit metrics and liquidity position.

Moody's believes that the material balance sheet deleveraging and the healthy liquidity position achieved are important prerequisites in support of the ambitious internal growth strategy and the associated ample capex plan which management is expected to execute in the next few years. Furthermore, Moody's considers positively the focus on the organic growth strategy on commodities characterized by favorable long term market trends, such as copper and coal, whose demand is anticipated to exceed supply over the next several years, mainly driven by sustained consumption in emerging economies. The timely execution of the group's key projects should also enhance the overall cost positioning of its operations and make these more resilient to any possible future deterioration in the commodity pricing environment.

On a more cautious note, Moody's believes that Xstrata's substantial capex plan and, to a lesser extent, its more generous dividend policy going forward, will lead to an overall cash deficit for the group in the next two years. This would result in higher debt levels compared to the 2010 year-end and some partial correction of the significant improvement in credit metrics reported in 2010.

However, Moody's believes that the expected contribution to cash flow generation of completed projects will help sustaining the improvement in the group's credit metrics compared to recent history, with the exception of Free Cash Flow related credit metrics, directly affected by the envisaged peak levels of expansionary capex.

Furthermore, Moody's believes that in the event of a protracted deterioration in commodity prices, Xstrata management would be able to react effectively, by taking actions to reduce capex and dividends, as was the case during the past downturn in 2009.

The liquidity profile is robust. As of 30 June 2011, Xstrata had a cash balance of $1.3 billion and three committed revolving credit facilities totalling $ 8.68 billion. These facilities have been replaced on 24 October 2011 by a new $6 billion multicurrency revolving credit facility with a 5-year tenor (with an extension option for a further two years), currently drawn for $1.9 billion. Akin to the previous revolving credit facilities, the new one has no financial covenants. Moody's positively notes that by signing the new facility, Xstrata has successfully removed the 2012 refinancing risk relating to its largest revolving credit facility of $4.68 billion, now cancelled, and has at the same time extended the group's overall debt maturity profile. Furthermore, the issuance of the new notes by Xstrata Finance (Canada) Limited, characterised by tenors ranging between 3 years and 30 years, has further improved the debt maturity profile of Xstrata. In Moody's view, the liquidity available, coupled with positive operating cash flow expected by the rating agency, should be more than adequate to fund the liquidity needs of the issuer over the next 12 months, mainly represented by capex and, to a lesser extent, by scheduled debt repayments.

The Baa2 rating could be upgraded provided Xstrata demonstrates the ability to execute its ambitious investment plans while keeping free cash flow positive through the cycle. As such, Moody's would expect Xstrata to maintain its Debt to EBITDA and Cash Flow from Operations (after dividends) to Debt metrics below 2.0x and in the high thirties respectively on a sustainable basis.

The rating could be downgraded in case of a significant deterioration in operating performance, failure by the group to complete its major capex projects on time and on budget, and the pursuit of an aggressive acquisition policy, leading to a material deterioration in credit metrics, with Debt to EBITDA rising above 2.5x, Cash flow from operations (after dividends) to Debt falling below 30% and free cash flow turning negative on average through the cycle.

The principal methodology used in rating Xstrata Finance (Canada) Limited was the Global Mining Industry Methodology published in May 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Zug, Xstrata plc is a global mining house with major operations in base metals, coal and alloys located in the Americas, Australia, South Africa and Europe. In fiscal year 2010, it reported preliminary consolidated revenues of USD30.49 billion and unadjusted EBITDA of USD10.43bn.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Olivier Beroud
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns a Baa2 rating with a positive outlook to new senior unsecured notes issued by Xstrata
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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