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Moody's Assigns A (P)B1 Rating To Fmg Resources' Senior Notes

Fuseworks Media
Fuseworks Media
Moody's Assigns A (P)B1 Rating To Fmg Resources' Senior Notes

Moody's Investors Service has assigned a (P)B1 rating to FMG Resources (August 2006) Pty Ltd's proposed US$2.04 billion 144A senior unsecured notes issuance. The outlook on the rating is stable. Proceeds from the issue will be used in connection with the refinancing of the senior secured notes and will be applied to the recently-established US$2.04 billion senior unsecured credit facility.

The Notes, issued by FMG Resources (August 2006) Pty Ltd ("FMG Resources"), a wholly owned subsidiary of Fortescue Metals Group Ltd ("Fortescue"), rank equally with all other senior unsecured debt of the issuer. The issuance is guaranteed by Fortescue and certain subsidiaries.

The prospective rating is based on information contained in draft documentation as October 18, 2010. The assignment of a definitive rating is subject to a review of the final documentation.


The B1 corporate family and senior unsecured ratings recognize the strengthening in Fortescue's financial profile due to the continued progress in its production ramp-up and the expectation for strong cash flow generation under its current annualized run rate. The rating also considers the solid fundamentals of the iron ore industry, which should continue to support high iron ore prices relative to historical levels.

The ratings are constrained by the relatively short operating history, and the uncertainty associated with plans that Fortescue is contemplating to substantially expand its production capacity over the next few years.

The company has announced an intention to significantly expand operations by more than tripling production capacity to 155mtpa over the next few years. While these expansions have yet to be board-approved, we view the likelihood of them materializing, particularly in light of the refinancing, as high.

The scope of potential expansion raises uncertainty around the future financial profile and free cash flow generation in coming years. The impact of any expansion plan will be assessed based on the ultimate scale, timeline, complexity of work involved, and final funding structure.

Moody's views the refinancing as a critical step in Fortescue's likely expansion plans as it lifts the restrictions under the company's current senior secured notes. Under the terms of the new indenture, Fortescue may issue a significant amount of debt to fund future expansion plans.

Moody's notes that the terms of the proposed notes allow Fortescue to incur a substantial amount of secured debt. If the company were to fund future expansion with a large proportion of secured debt, the rating on the notes could be downgraded to reflect the potential legal subordination to secured creditors.

The stable outlook reflects the expectation that Fortescue will continue its trend of stable production and maintain its currently strong financial profile. The outlook also reflects Moody's expectation that expansions are likely to be largely debt funded and until the ultimate scope and funding of these initiatives are known we expect the company to maintain strong credit metrics to provide an adequate buffer against execution risks and cost overruns.

The last rating action was on October 5, 2010 when Moody's assigned a B1 corporate family rating to Fortescue Metals Group Ltd and upgraded the secured notes of FMG Resources (Aug 2006) Pty Ltd.

The principal methodology used in rating FMG Resources (August 2006) Pty Ltd was Global Mining Industry rating methodology published in May 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Fortescue Metals Group, based in Perth, is an iron ore producer engaged in the exploration and mining of iron ore for export, mainly to China.


Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website for further information.

Please see the Credit Policy page on for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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