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Global Credit Research - 11 Aug 2010
Approximately $2.7 billion of debt affected
Toronto, August 11, 2010 -- Moody's Investors Service assigned a B3 (LGD2, 27%) rating
to OPTI Canada Inc.'s (OPTI) proposed secured first-lien
1C notes. Moody's also affirmed OPTI's Caa2 Corporate Family Rating
(CFR), B1 rating on the existing C$190 million secured first-lien
revolving facility, B2 rating on the secured first-lien 1B
notes and Caa3 rating on the US$1.75 billion secured second
lien notes. The rating outlook remains negative.
OPTI intends to issue approximately US$300 million of first-lien
1C notes, and raise an additional US$100 million through
a tack-on offering to its existing US$425 million first-lien
1B notes. Proceeds will be used to shore up liquidity and for general
corporate purposes. The new 1C note holders will have a junior
claim on OPTI's assets behind the existing 1B notes and the revolver
lenders, but will rank ahead of the US$1.75 billion
Following the debt issue, OPTI's already very high debt burden
will increase by approximately 15% to C$2.7 billion,
while the enhanced liquidity will help address near term funding needs
as Long Lake continues its slow ramp up and OPTI continues its corporate
To accommodate the increased leverage, concurrent with the notes
offerings, OPTI has obtained consent from its revolver lenders to
increase the debt to capitalization covenant to 75% from 70%,
and to issue up to US$300 million of additional debt under the
first-lien facility in addition to the US$100 million previously
OPTI's liquidity will improve from the proposed debt issuances.
However, the cash burn rate and the extent of reliance on external
financing will be determined by the performance of Long Lake. Post-closing
the company would have approximately C$384 million of cash and
C$100 million of availability under the C$190 million revolving
facility. We expect the cash balance to be substantially used up
by mid 2011. OPTI should remain in compliance with its revolver's
debt to capitalization covenant over the next 12 months, but will
have limited headroom. OPTI's revolving facility matures
in December 2011 and the 1B notes mature in December 2012. We expect
the company to address these imminent maturities in 2011 to lessen refinancing
risk, which continues to weigh on the rating.
The negative outlook reflects the uncertainty surrounding the timing and
ultimate success of the ramp up at Long Lake and, longer term,
the susceptibility of Long Lake's cash flows to oil prices,
and operating performance given the very high ongoing debt service burden.
OPTI's ratings have been assigned by evaluating factors that Moody's believes
are relevant to the company's risk profile, such as the company's
(i) business risk and competitive position compared with others within
the industry; (ii) capital structure and financial risk; (iii)
projected performance over the near to intermediate term; and (iv)
management's track record and tolerance for risk. These attributes
were compared against other issuers both within and outside OPTI's core
industry. In evaluating OPTI, Moody's also used elements
of the E&P Industry Rating Methodology published in December 2008
and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research and Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
..Issuer: OPTI Canada Inc.
....Senior Secured Regular Bond/Debenture,
Downgraded to LGD5, 70% from LGD4, 63%
..Issuer: OPTI Canada Inc.
....Senior Secured Regular Bond/Debenture,
Assigned a 27 - LGD2 to B3
..Issuer: OPTI Canada Inc.
....Senior Secured Bank Credit Facility,
Withdrawn, previously rated B1, LGD1, 01%
The last rating action on OPTI was on November 16, 2009 when we
lowered its CFR to Caa2 from Caa1.
OPTI Canada Inc., headquartered in Calgary, Alberta,
holds a 35% interest in Long Lake, an in-situ oil
sands operation near Fort McMurray, Alberta.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Canada Inc.
Moody's rates OPTI's new 1C notes B3; affirms Caa2 CFR
70 York Street
Toronto, ON M5J 1S9
No Related Data.
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