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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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2.            You acknowledge and agree that Moody’s credit ratings: (i) are current opinions of the future relative creditworthiness of securities and address no other risk; and (ii) are not statements of current or historical fact or recommendations to purchase, hold or sell particular securities.  Moody’s credit ratings and publications are not intended for retail investors, and it would be reckless and inappropriate for retail investors to use Moody’s credit ratings and publications when making an investment decision.  No warranty, express or implied, as the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any Moody’s credit rating is given or made by Moody’s in any form whatsoever.          

 

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Related Issuers
Rating Action:

Moody's downgrades Northwest Acquisition to B3; outlook Stable

31 Jan 2019

Toronto, January 31, 2019 -- Moody's Investors Service ("Moody's") has today downgraded Northwest Acquisitions ULC's ("Northwest") corporate family rating (CFR) to B3 from Ba3, Probability of Default Rating to B3-PD from Ba3-PD, its first lien secured rating to B1 from Ba1, and its second lien secured rating to B3 from Ba3. Moody's has also withdrawn the speculative grade liquidity rating previously assessed at SGL-2. The ratings outlook is stable.

"Northwest's ratings have been downgraded because of materially lower production expected in 2019, continued weak diamond pricing, a now uncertain development plan to address its short mine life, and the likelihood of a covenant breach in 2019", said Jamie Koutsoukis, Moody's Vice-President, Senior Analyst.

Downgrades:

..Issuer: Northwest Acquisitions ULC

.... Probability of Default Rating, Downgraded to B3-PD from Ba3-PD

.... Corporate Family Rating, Downgraded to B3 from Ba3

....Senior Secured Revolving Bank Credit Facility, Downgraded to B1 (LGD2) from Ba1 (LGD2)

....Senior Secured Second Lien Notes due 2022, Downgraded to B3 (LGD4) from Ba3 (LGD4)

Outlook Actions:

..Issuer: Northwest Acquisitions ULC

....Outlook, Remains Stable

Withdrawals:

..Issuer: Northwest Acquisitions ULC

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-2

RATINGS RATIONALE

Northwest's B3 CFR is driven by 1) operating underperformance in the last year and a material decline in production expected in 2019, 2) an undefined plan to address its short mine life 3) new management that has recently been put in place, creating increased execution risk, 4) the opaqueness of diamond pricing, including the managed supply-demand characteristics of this luxury good and the disruption synthetic diamonds could have on the market, 5) the likelihood the company will breach its financial covenants in 2019, and 4) concentration risk (one mineral, two co-located mines). The company benefits from being located in favorable mining jurisdiction (Canada), and from expected cost reductions from recent restructuring efforts.

In 2019, we expect Northwest will produce 6 million carats (compared to 10 million expected for 2019 when the rating was first assigned) which, coupled with current diamond prices, will result in leverage (adjusted debt/EBITDA) increasing to 3.1x from 2.5x at Q3/18 (debt/annualized Q3 EBITDA). Though the company has guided that production will increase back to over 8 million carats in 2020, given the material production shortfall that will occur in 2019, Moody's cannot be confident in Northwest's 2020 plan until an operational track record for this new management team can be established. Also, the company's existing producing kimberlite pipes have a mine life of about 4 years. Northwest will need to develop new kimberlite pipes to maintain production past 2023, and that will require a higher capital spend in the development years, which will likely lead to an increase in negative free cash flow.

The company has weak liquidity, as its leverage covenant is likely to be breached in 2019. Sources of liquidity include $122 million of cash as of September 2018, and $112 million of availability on its $200 million credit facility maturing 2021. We expect that Northwest will generate negative free cash flow of about $35 million over the next four quarters.

Northwest's credit facility has covenants including maximum net debt to EBITDA of 2.25x, with annual step downs to 2.0x in Dec 2019 and 1.75x in Dec 2020. We believe that the company is at risk of breaching its leverage covenant in 2019. We anticipate net debt to EBITDA of 2.6x (Moody's estimate) at year end 2019.

The stable outlook reflects Moody's belief that Northwest will be able to negotiate covenant relief and that it has sufficient liquidity over the next year, during which new management will have time to develop a plan to extend mine life and to develop an operating track record.

The B3 CFR could be downgraded if liquidity deteriorates, that could result from an unresolved covenant breach, if operating performance fails to improve past 2019, or if management is unable to develop a credible plan for extending mine life past 2023, coupled with funding and liquidity for that plan.

The B3 CFR could be upgraded if management is able to demonstrate an ability to meet its covenants, if management is able to execute on improved operating performance including producing over 8 million carats in 2020 and leverage falls below 2x (debt/annualized EBITDA of 2.5x at Q3/18). An upgrade would also require that management develops a credible plan for extending mine life past 2023, coupled with funding and liquidity for that plan.

Northwest Acquisitions ULC, was purchased from public shareholders in October 2017, and is ultimately owned by the Roy Dennis Washington Trust. It is the fourth largest diamond miner globally, historically supplying about eight to nine million carats/year of rough diamond assortments to the global market. It owns an 89% interest in and operates the Ekati diamond mine and holds a 40% ownership interest in the Diavik diamond mine, operated by Rio Tinto plc., both located in the Northwest Territories of Canada.

The principal methodology used in these ratings was Mining published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

With reference to the withdrawal of the rating of Northwest Acquisitions ULC: The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jamie Koutsoukis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 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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​
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