FMG ratings outlook upgraded

Moody’s has upgraded Fortescue’s outlook to stable, affirming its rating at Ba3.

The upgrade is a positive movement for the miner, and follows its earlier escape of the industry-wide downgrade that occurred in February.

At the time Fitch reaffirmed the iron ore miner’s credit rating as other majors saw their ratings downgraded or were given negative outlooks for the future.

BHP and Glencore were hit hard, going from A+ to A and BBB to BBB- respectively whilst Anglo American and Freeport McMoran were cut below the investment grade, while rating Anglo’s credit grade as junk only days before the miner carried out a massive restructure that will see it exit from Australia.

Moody’s investor service also downgraded Rio Tinto’s ratings, one of the last major miners to retain its rating unchanged, from A3 to Baa1, and gave the company a negative outlook.

In its note, Fitch stated Fortecue’s Long Term Issue Default Rating (LT IDR) remains at BB+, although it did continue to give a negative outlook on the miner.

It also affirmed its long term ratings at BBB- on the secured term loan and note and BB on the unsecured notes.

Now Moody’s has given a  positive outlook for the miner with its rating upgrade, citing its aggressive stance on paying down debt as the driver behind the re-rating.

In Moody’s note, it stated, “The debt reduction achieved in the second half of fiscal 2016 has lowered breakeven costs and created a substantial buffer for the company to maintain leverage metrics at adequate level for its rating, even under lower iron ore price scenarios.”

To date, the miner has paid down US$2.9 billion this year, slashing its interest expenses by US$186 million.

It now has US$3.676 billion outstanding on its credit facility, around US$2.16 billion remaining in senior secured notes maturing in CY2022, and US$478 million remaining in senior unsecured notes maturing in CY2022.

FMG CFO Stephen Pearce welcomed the ratings upgrade.

“We are pleased that Moody’s has recognised Fortescue’s operating performance, significant progress in reducing costs and the generation of strong operating cash flows,’ Pearce said.

“This has enabled the company to continue to reduce debt levels while maintaining solid liquidity.”

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