NOTE: On February 28, 2019, the press release was corrected as follows: In the Ratings Rationale section, the National Scale Credit Ratings Disclosure was added after the principal methodology paragraph. Revised release follows.
New York, February 27, 2019 -- Moody's Investors Service ("Moody's") has downgraded to Ba1
Vale S.A. ("Vale")'s senior unsecured ratings and the ratings
on the debt issues of Vale Overseas Limited fully and unconditionally
guaranteed by Vale. Moody's also downgrade to Ba2 the senior unsecured
ratings of Vale Canada Ltd. The outlook for all ratings is negative.
At the same time, Moody's America Latina Ltda. has
withdrawn the Baa3/Aaa.br issuer rating of Vale S.A.
and assigned a Ba1/Aaa.br corporate family rating, while
the ratings on its senior unsecured local notes (Debentures de Infraestrutura)
were downgraded to Ba1 (global scale) and confirmed at Aaa.br (national
scale). The outlook for all ratings is negative.
These rating actions conclude the review for possible downgrade for Vale's
ratings initiated on 29 January 2019 in response to the collapse of the
tailings dam at the Córrego do Feijão mine in the city of
Brumadinho, state of Minas Gerais.
Ratings actions:
Issuer: Vale S.A.
....Senior Unsecured Notes due 2023,
downgraded to Ba1 from Baa3
....Senior Unsecured Notes due 2042,
downgraded to Ba1 from Baa3
..Issuer: Vale Overseas Limited
....Gtd Senior Unsecured Notes due 2021,
downgraded to Ba1 from Baa3
....Gtd Senior Unsecured Notes due 2022,
downgraded to Ba1 from Baa3
....Gtd Senior Unsecured Notes due 2026,
downgraded to Ba1 from Baa3
....Gtd Senior Unsecured Notes due 2034,
downgraded to Ba1 from Baa3
....Gtd Senior Unsecured Notes due 2036,
downgraded to Ba1 from Baa3
....Gtd Senior Unsecured Notes due 2039,
downgraded to Ba1 from Baa3
..Issuer: Vale Canada Ltd.
....Senior Unsecured Bonds due 2032,
downgraded to Ba2 from Ba1
Outlook Actions:
..Issuer: Vale Overseas Limited
.Outlook, Changed to Negative from Rating Under Review
..Issuer: Vale Canada Ltd.
.Outlook, Changed to Negative from Rating Under Review
RATINGS RATIONALE
Vale's downgrade to Ba1 reflects heightened credit risk after its
January 25 tailings dam collapse at Brumadinho and the considerable uncertainties
associated with the full impact and long-term implications of this
labor and environmental disaster for Vale's overall credit profile,
as well as the significant overhang of litigation exposure and financial
liability that is likely to persist in the years to come. While
Vale's robust financial position provides a good cushion against
the potential financial impacts, the accident raises concerns from
a social, environmental and corporate governance perspective,
in particular considering that it occurred a little over three years after
Samarco's tailings dam collapse.
Following the accident, Vale has articulated a comprehensive response
effort to provide humanitarian assistance and emergency financial aid
to those affected, as well as to reinforce the monitoring and inspection
of dams. However, it remains uncertain at this stage the
full extent of costs, claims and the overall business impact of
this accident on Vale's reputation, operations and financial
results.
Even though the decommissioning of upstream tailings dams and the suspension
of the Laranjeiras dam operating license will lead to temporary interruption
of iron ore production of about 70 million tons per year, Vale has
operating flexibility that allows the company to partially offset such
loss with additional production in other areas.
Vale's Ba1 ratings continue to be supported by the company's diversified
product base and low cost position, and substantive portfolio of
long lived assets of iron ore, nickel, copper and coal.
The enhanced production profile with S11D and significant reduction in
debt levels are also important factors for the Ba1 ratings, which
better position Vale to withstand volatility in the prices for its major
products and now provides some cushion to the costs associated with the
accident.
Vale remains exposed to iron ore and base metals market fundamentals.
More robust economic growth rates in 2017 and earlier in 2018 contributed
to greater base metal and iron ore consumption and a price rally,
but there could be a moderate correction in iron ore prices in the medium
term, supported by slower global economic growth, in particular
in China, and lower price premiums. Besides, Samarco
continues to represent a contingent liability, while the potential
costs associated with Brumadinho's accident will remain a constraint
for the ratings in the foreseen horizon.
Vale Canada's Ba2 ratings continue to reflect its weaker operating performance
compared to Vale's and the fact that Vale S.A. does
not guarantee the 2032 notes, while it continues to reflect Vale's
ability to support Vale Canada. The rating continues to reflect
this subsidiary's major position in the global nickel market, its
asset base and strategic importance to its parent.
The negative outlook incorporates the uncertainties around the amount
and timing of future cash outlays related to the accident. Moreover,
it also reflects the risks of ongoing investigations about the cause of
the accident and responsibilities.
The ratings could be stabilized should we have more visibility on the
costs and financial liabilities that Vale will incur as a result of the
accident. Still, an upgrade on Vale's rating would require
a positive outcome for legal actions and investigations, together
with the maintenance of a solid liquidity, credit profile and positive
free cash flow generation, supported by leading market positioning
in its main segments and low-cost operations. An upgrade
would be also dependent on evidences of enhancement in the company's
corporate governance oversight and risk management and controls.
Quantitatively, an upgrade would also require Vale's adjusted total
debt/EBITDA to remain below 2.5x and EBIT/interest expense above
5x on a sustainable basis.
Conversely, Vale's ratings could be downgraded should the
ultimate costs related to the disaster in Brumadinho be materially above
our expectations due to higher fines and settlements, litigations
and class actions, or if operations are further impaired,
substantially affecting free cash flow generation. Quantitatively,
the ratings or outlook could suffer negative pressure should conditions
for iron ore and base metals deteriorate, leading to lower profitability,
with leverage ratios (total debt to EBITDA) trending towards 3x or above
and EBIT/Interest expense falling below 4x. A marked deterioration
in the company's liquidity position would also precipitate a downgrade.
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.
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a “.nn” country modifier signifying the relevant country, as in “.za” for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings”. While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
Headquartered in Rio de Janeiro, Brazil, Vale S.A.
(Vale) is one of the largest mining enterprises globally. The company
has (1) substantive positions in iron ore and nickel, (2) relevant
operations in copper and coal, and (3) supplemental positions in
energy and steel production. Vale is the largest global supplier
of iron ore, with around 375 million tons of production as of the
12 months ended September 2018, and the largest global producer
of nickel, with 258,700 tons produced during the same period.
The company's principal mining operations are in Brazil, Canada,
Indonesia, New Caledonia and Mozambique. For the 12 months
ended September 2018, Vale had net operating revenue of $35.9
billion.
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.
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.
Barbara Mattos, CFA
Senior Vice President
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
