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Moody’s Investor Service has downgraded Molycorp (NYSE:MCP) from Ca to Caa2. The firm has a negative outlook for Molycorp, and its ratings change comes after the company decided to take advantage of a 30-day grace period on a $32.5 million semi-annual payment of its senior secured notes. Moody’s noted that Molycorp has said it “intends to use the grace period to continue to evaluate different options to restructure its capital structure.”
Moody’s Investor Service has downgraded Molycorp (NYSE:MCP) from Ca to Caa2. The firm has a negative outlook for Molycorp, and its ratings change comes after the company decided to take advantage of a 30-day grace period on a $32.5 million semi-annual payment of its senior secured notes. Moody’s noted that Molycorp has said it “intends to use the grace period to continue to evaluate different options to restructure its capital structure.”
As quoted in the press release:
The downgrade reflects the continued pressure on the company’s credit profile, and a capital structure that has become untenable. The ratings also reflect the expected recovery in the event of bankruptcy.
The Ca corporate family rating continues to reflect the company’s modest size and diversity, inherent volatility of the company’s margins, high debt levels and weak liquidity. At the same time, the ratings are supported by the good resource base, potential for competitive cost structure once full capacity is achieved, and substantively reduced capex requirements going forward. Although we acknowledge that Molycorp is the largest rare earths producer in the Western hemisphere and owns one of the world’s largest, most developed rare earths projects outside of China, one of the key rating drivers is that China still produces most of the world’s rare earths elements and the country’s production and exporting behavior dictates market pricing.
Given that the company is taking advantage of the grace period with respect to the interest payment due and is exploring options to restructure its capital structure, an upgrade isunlikely. However, the ratings or outlook could be favorably impacted if the company were able to significantly improve its operating performance and debt protection metrics. reduce its debt levels and/or improve cash flow generation.
A downgrade would result should liquidity continue to deteriorate further and recovery in a restructuring results in a higher than expected loss to the creditors.
Molycorp, Inc.’s ratings were assigned by evaluating factors that Moody’s considers relevant to the credit profile of the issuer, 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. Moody’s compared these attributes against other issuers both within and outside Molycorp, Inc.’s core industry and believes Molycorp, Inc.’s ratings are comparable to those of other issuers with similar credit risk. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.