S&P Global Ratings lowered Atlas Iron Ltd.'s long-term issuer credit rating to CCC from B- and placed the ratings on CreditWatch with developing implications, from CreditWatch with positive implications previously.
The downgrade reflects S&P's view that Atlas could face a liquidity crisis or breach a covenant trigger on a term loan within the next 12 months, in the absence of other cash generative options the company is investigating. Atlas Iron's underlying business and creditworthiness continue to weaken due to higher iron ore grade discounts and higher all-in-cash costs, the rating agency said June 8.
The company's cash flows from operations are negative, which is likely to deteriorate the company's cash position, the report said.
Atlas' merger with Mineral Resources Ltd. would be positive for its credit quality, but the recent challenge from the new 19.9% shareholder Fortescue Metals Group Ltd. may result in the company going into default within the next 12 months if a transaction fails to materialize, S&P added.
Fortescue said that in its current terms, it will not support Mineral Resources' proposed all-share play for Atlas Iron.
The issue-level rating on the company's term loan B was also lowered to CCC and the recovery rating was retained at 3 due to its vulnerability and dependence on favorable business, financial and economic conditions to meet its financial commitments.
Meanwhile, the CreditWatch developing implications reflects the possibility of a positive or negative rating action in due course.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.
