Teck Resources Ltd (USA)(NYSE:TCK) had to lose its investment-grade rating assigned by Moody’s Investors Service as crash in commodities prices dims debt outlook. The declining prices of everything from zinc to coal are overshadowing cost-cutting measures.
Moody’s lowered company’s senior unsecured investment-grade rating to ‘Ba1’ from ‘Baa3’, while maintaining the negative outlook, indicating it may lower further. Fitch and Standard & Poor’s Ratings still maintain company on the lowest investment grade.
The expert view
Moody’s said that they expect sizeable investment spending and extended commodity price weakness will prompt Teck’s financial leverage to stay well in excess of investment-grade limits through at least 2017. A global commodity slump has weighed on the majority of commodities prices that company produces including zinc, metallurgical coal and copper.
At the same time, Teck is shouldering its 20% part of construction costs at Suncor Energy Inc. (USA)(NYSE:SU)’s C$13 billion project in Alberta. The company projected in February 2015 it would spend as much as C$850 million on the same project this year.
The expectations
Moody’s stated that further downgrades may follow if Teck utilizes more funds than expected, or its liquidity weakens. Also, there can be a return to investment-grade rating if commodity prices moved higher that can reduce debt and improve cash and earnings, for a sustained period.
The $750 million in company’s bonds due in year 2023 have declined to 77.1 cents from 89.9 cents recorded at the end of 2014, increasing yields to 7.92%. The gap between an index of investment grade debt and company’s yields widened to 5.74% points on August 24 from 2.35% points at the end of 2014.
Teck Resources Ltd (USA)(NYSE:TCK) reiterated that it has over C$6.5 billion in credit and cash and that all businesses remain cash-flow positive. It is taking the vital measures to emerge as a stronger firm from the price slump.
