A Teck Resources mine in Chile
Teck Resources Ltd. moved closer to capping its remarkable comeback, as Standard & Poor's returned Canada's largest miner to investment-grade status, citing its recent debt-reduction moves and the strong rebound in commodity prices.
The move by S&P to raise Teck's rating allows the company to move more freely in the financial markets and start looking seriously at its next possible acquisition target.
"Teck has improved its financial risk profile to a level commensurate with an investment-grade rating and that its better-than-average cost profile will enable it to maintain intermediate credit metrics in the medium term," S&P credit analyst Maude Tremblay said.
It's the first of two investment-grade status ratings Teck needs to remove a security package put on all of its assets a year ago when it restructured billions in debt it took on with the ill-timed $14-billion purchase of Fording Canadian Coal Trust in 2008.
That security package placed on the company by its lenders also included restrictions on capital spending, which is expected to be just over $1-billion this year.
To have the restrictions removed, Teck has to pay off a bridge loan, which it has done, and receive investment-grade status from both the S&P and Moody's rating agencies.
"We now have that with S&P and when and if we get that from Moody's we'll be relieved of having that as a security," said Greg Waller, Teck's vice-president of investor relations.
"It will give us the freedom to manage the company and make decisions without [those]constraints."
An investment-grade rating also allows Teck to raise money at lower cost, Mr. Waller said, but added "we don't have any plans to do that at this point."
Teck's debt ratings were cut when it took on $9.8-billion (U.S.) in debt to buy Fording, a deal which closed on the eve of the global financial meltdown that hit many commodities Teck produces the hardest, such as copper and coal.
The Vancouver-based miner took drastic action to try to pay off its debt, slashing costs, suspending its dividend and starting an asset-sale program that saw it shed its gold properties and other "non-core" businesses.
A year ago it also restructured some of its debt, pushing off payments to later dates and at higher interest rates. It also announced a $1.7-billion investment in the company by China Investment Corp. (CIC) in exchange for a 20-per-cent stake.
Teck's rebound has also been driven by a resource price rebound, but how long that will last is still a concern for S&P.
"We do not envisage upward rating potential in the near term. The ratings are constrained … by the company's business risk profile, including the exposure to volatile metal prices and the operating risks inherent to the mining industry," S&P said.
Moody's upgraded Teck's debt rating in early March, but not to investment-grade levels.
DBRS and Fitch have recently upgraded Teck to investment-grade status, but both also cited lingering concerns about Teck's operations.
"A negative rating action could follow from a leveraged acquisition or other recapitalizing event. A positive rating action could follow further sustainable reduction in financial leverage," Fitch said after its recent ratings upgrade.
As of mid-March, the company's debt stood at about $6.3-billion (Canadian), which included about $5.1-billion in fixed-rate term notes and $810-million term loan.