-FQM capital raising for debt repayment
First Quantum Minerals (FQM) has announced that it will be offering addition debt securities that it hopes will allow it to raise $300 million, according to the company.
“First Quantum Minerals Ltd. (“First Quantum” or “the Company”) (TSX:FM) today announced that it is launching an offering of an additional $300 million principal amount of its Senior Notes due 2023 (the “Additional 2023 Notes”)”, read a statement issued by Company President, Clive Newall, on behalf of the Board of Directors of First Quantum Minerals Ltd and issued on SENS on 10th January 2019.
The company has already issued this type of security to raise capital in the capital markets. “The Company currently has $1.1 billion of Senior Notes due 2023 (the “Existing 2023 Notes”) outstanding and the Additional 2023 Notes will be offered under the same indenture as the Existing 2023 Notes”.
Senior notes are debt securities that are tradable on the stock market (analogous to bonds) that take precedence over other types of debt, in that senior note-holders are the first to be paid if any assets are left over after a company’s liquidation, following bankruptcy proceedings. This is what makes them attractive for companies that have a stable credit rating. According to Moodys, First Quantum’s Credit Rating as at mid-2019 was Caa1, which is stable.
Another reason for choosing this type of security is that Senior notes pay lower coupon rates of interest than junior unsecured bonds because they boast a higher level of security and carry a reduced risk of default.
“The Additional 2023 Notes will be senior unsecured obligations of the Company and will be guaranteed by certain of the Company’s subsidiaries. Interest on the Additional 2023 Notes will accrue from October 1, 2019 and will be payable semiannually”.
The notes announcement also came with a caution to prospective investors as the pricing would be determined based on market conditions. “The offering price of the Additional 2023 Notes, along with certain other terms, will be determined at the time of pricing of the offering, subject to market conditions”.
The company has indicated that it will use the proceeds for debt refinancing of certain maturing securities. “The Company intends to use the proceeds from the sale of the Additional 2023 Notes to fund the redemption of the remaining $300 million aggregate principal amount of Senior Notes due 2021”.
The company has also disclosed how it intends to pay for any associated fees that may result. “Fees associated with the offering are expected to be paid using cash on balance sheet”. Further information regarding the Senior notes offer will be made available in a memorandum that the company has issued. “The Company has prepared an offering memorandum which will be made available to selected prospective purchasers of the Additional 2023 Notes”.
Prospective purchasers will be looking closely at the Mining company’s credit rating. Moody’s June 2019 downgrade of FQM from B3 to Caa1 rating rationale was based on macro factors such as uncertainty over sales tax which was reversed after the rating announcement was made.
In addition, Moody’s also forecast “lower profitability and cash flow generation from the two Zambian copper mines will prevent FQM from meaningful deleveraging over the next 12-18 months despite the ramp-up of production at the Cobra Panama mine”.