Sherritt Announces Transaction to Improve its Capital Structure
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES
OR FOR DISSEMINATION IN THE UNITED STATES
Sherritt Announces Transaction to Improve its Capital Structure
TORONTO, February 26, 2020 – Sherritt International Corporation (“ Sherritt” or the
“Corporation”) (TSX:S), a world leader in the mining and refining of nickel and cobalt from lateritic
ores, announced today a proposed transaction (the “ Transaction”) designed to improve the
Corporation’s capital structure and strengthen its overall financial position.
The Transaction, described in further detail below, would reduce Sherritt’s total outstanding
principal debt obligations by approximately $ 414 million and reduce annual cash in terest
payments by approximately $19 million by, among other things:
(i) exchanging Sherritt’s existing note obligations in the aggregate principal amount of
approximately $588 million, together with all accrued and unpaid interest, for new 8.50%
second lien notes due 2027 (the “New Second Lien Notes ”) in an aggregate principal
amount of approximately $319 million and certain early consent cash consideration, and
(ii) exchanging Sherritt’s obligations in respect of the partner loans relating to the Ambatovy
Joint Venture (as defined below) in the aggregate principal amount of approximately $145
million, plus all accrued and unpaid interest, for, at the election of each lender, either its
pro rata share of Sherritt’s interests in the Ambatovy Joint Venture or amended loans with
no further recourse as against Sherritt, all as further described below.
The Transaction would also result in an extension of th e maturity of the Corporation’s note
obligations from 2021, 2023 and 2025 under its existing notes to 2027 under the New Second
Lien Notes.
The Transaction does not affect any other obligations of the Corporation, and Sherritt will continue
to satisfy its obligations to employees, suppliers, customers and governmental authorities in the
ordinary course of business.
“Our proposed Transaction builds on our efforts over the past several years to strengthen our
balance sheet, and represents our best alternative to address our pending debt maturities and
liquidity constraints,” said David Pathe, President and CEO. “Subject to the applicable approvals,
the proposed T ransaction will improve Sherritt’s capital structure and liquidity and deliver a
number of benefits to stakeholders. Among other things, the Transaction treats all three series
of Sherritt’s existing notes equally, provides noteholders with security over Sherritt’s material
assets, and will put Sherritt in a better position to increase the overall value of its business to be
in a position to repay in full the new second lien notes.”
“Sherritt has carefully considered various potential alternatives to address its significant historical
debt level and liquidity challenges, attributable to various industry and geopolitical factors and our
legacy Ambatovy debt. The proposed Transaction will strengthen our capital structure and is the
best available alternative for, and in the best interests of, the Corporation and its stakeholders in
the circumstances,” said Sir Richard Lapthorne, Chair of the Sherritt board of directors. “On behalf
of the Board, I recommend that all affected debtholders vote in favour of the Transaction.”
Deleveraging the Corporation at this time and improving its overall capital structure and liquidity
are critical to put Sherritt in a better position to withstand challenges relating to, among other
things, exposure to volatile commodity prices and overall challenging geopolitical and market
conditions, and to strengthen the Corporation’s financial condition.
The Transaction will be implemented through a corporate plan of arrangement (the “ Plan of
Arrangement”) in the proceedings (the “CBCA Proceedings”) commenced today by Sherritt and
its subsidiary, 11722573 Canada Ltd. (collectively the “Applicants”) under the Canada Business
Corporations Act (the “CBCA”), as discussed further below.
Background to the Transaction
As has been previously communicated by the Corporation, Sherritt has been challenged by
unfavourable geopolitical conditions and depressed nickel prices for an extended period of time,
as well as significant difficulties in collecting its overdue Cuban receivables in light of increased
U.S. sanctions against Cuba, all of which have had a material negative impact on Sherritt’s overall
liquidity.
Sherritt has also been challenged by its significant historical debt levels, which resulted principally
from a decision in 2007 to invest as a partner in building out one of the world’s largest lateritic
nickel mining, processing and refining operations in Madagascar (the “ Ambatovy Joint
Venture”). In connection with the Ambatovy Joint Venture , Sherritt had signif icant funding
requirements, which were exacerbated by cost overruns and unfavorable market conditions, that
contributed to Sherritt’s significant debt levels. Since Sherritt was released from its US$840 million
guarantee in respect of the Ambatovy Joint Venture senior project financing in 2015, Sherritt has
taken steps to reduce and address certain funding requirements and debt obligations relating to
the Ambatovy Joint Venture , including the elimination of $1.4 billion of debt in exchange for a
reduction of Sherritt’s ownership interest in the Ambatovy Joint Venture from 40% to 12%.
The Corporation does not have any near term maturity in respect of any of its non-revolving debt
obligations, and has cash resources and availability under its revolving credit facility. However,
its high level of debt with fixed cash interest payments has been a significant concern for Sherritt
for an extended period of time, during which Sherritt has continued to pursue its strategic priorities
of reducing debt, maintaining financial strength and preserving liquidity.
Sherritt, with the assistance of legal and financial advisors, has undertaken a detailed review of
alternatives including, among other things, raising additional secured debt in priority to its existing
unsecured debt obligations, extending the maturities of its existing unsecured debt obligations,
exchanging certain or all of its unsecured notes for new secured debt, exchanging debt for equity,
purchasing notes for cancellation in the open market or pursuant to an auction, maintaining the
status quo and other potential strategic alternatives. Pursuant to the terms of Sherritt’s existing
notes indenture, Sherritt has the ability to raise secured second lien debt in the amount of
approximately $230 million, and to complete an exchange transaction using such secured debt
basket outside of a CBCA transaction.
Sherritt has also engaged in extensive efforts with its Cuban partners over an extended period of
time to reduce its outstanding Cuban receivables . Such efforts have culminated in a new
agreement pursuant to which Sherritt’s Cuban partners have committed to increase the US$2.5
million monthly payments to Sherritt pursuant to the overdue receiva bles agreement ratified in
June 2019, with incremental US$5 million monthly payments to fund Energas operations, and
reduce overdue receivables owing to Sherritt. While this new payment commitment from Sherritt’s
Cuban partners is a positive step towards assisting Sherritt with its liquidity challenges, there
remains potential uncertainty with regard to the Corporation’s Cuban operations and future
collections in light of increased U.S. sanctions and other factors continuing to affect Cuba, and
there remai n other market and commodity price challenges that continue to impact Sherritt’s
overall liquidity.
Sherritt believes that reducing its outstanding debt obligations and associated cash interest
expense is required at this time in order to provide a comprehensive solution to its liquidity
challenges and to put the Corporation in a better financial position to create financial and
operational stability and to maintain and maximize stakeholder value.
The Corporation believes that based on its available options and alternatives, the Transaction is
the best available alternative to address Sherritt’s debt and liquidity challenges, is fair and
reasonable to all stakeholders, and treats affected parties, regardless of maturity or interest rate,
in a fair and balanced way considering all of the current circumstances.
Key Transaction Terms
The key terms of the Transaction include:
All of the Corporation’s outstanding (i) 8.00% senior unsecured debentures due 2021,
(ii) 7.50% senior unsecured debentures due 2023, and ( iii) 7.875% senior unsecured
notes due 2025 (collectively, the “Existing Notes” ), in the aggregate principal amount of
approximately $588 million, plus all accrued and unpaid interest, will be exchanged on the
implementation date of the Plan of Arrangement (the “Effective Date”) as follows:
o each holder of Existing Notes (a “Noteholder”) that votes in favour of the Plan of
Arrangement by 5:00 p.m. (Toronto time) on the early consent date of March 27,
2020 (the “ Early Consent Deadline ”), as such deadline may be extended by
Sherritt (each, an “ Early Consenting Noteholder”) will receive as consideration
in exchange for its Existing Notes:
New Second Lien Notes in an aggregate principal amount equal to (i) 50%
of the principal amount of Existing Notes held by such Early Consenting
Noteholder on the Effective Date , plus (ii) the amount of accrued and
unpaid interest owing to such Early Consenting Noteholder in respect of its
Existing Notes up to but not including the Effective Date; and
cash in an amount equal to 3% of the principal amount of Existing Notes
voted in favour of the Plan of Arrangement by the Early Consent Deadline
and held by such Early Consenting Noteholder as at Effective Date (the
“Noteholder Early Consent Cash Consideration”);
o each Noteholder that is not an Early Consenting Noteholder will receive as
consideration in exchange for its Existing Notes:
New Second Lien Notes in an aggregate principal amount equal to (i) 50%
of the principal amount of Existing Notes held by such Noteholder on the
Effective Date, plus (ii) the amount of accrued and unpaid interest owing to
such Noteholder in respect of its Existing Notes up to but not including the
Effective Date.
The final principal amount of New Second Lien Notes to be issued pursuant to the
Transaction will depend on the aggregate amount of interest accrued in respect of the
Existing Notes up to the Effective Date. The Corporation does not anticipate making
further interest payments in respect of the Existing Notes, and all accrued and unpaid
interest in respect of the Existing Notes will be exchanged as part of the Transaction.
Based on an Effective Date of April 30, 2020, the aggregate principal amount of New
Second Lien Notes to be issued would be approximately $319 million.
While the aggregate principal amount of New Second Lien Notes outstanding is $ 150
million or more, the Corporation will be required to redeem New Second Lien Notes at par
on a semi-annual basis on April 30 and October 30 of each year, from and after October
30, 2021, in a principal amount equal to 50% of the Corporation’s excess cas h flow,
subject to a minimum liquidity threshold and the terms of the new notes indenture that will
govern the New Second Lien Notes.
Sherritt’s obligations under its Ambatovy Joint Venture partner loans outstanding pursuant
to subordinated carry finance agreements with its Ambatovy Joint Venture partners (the
“CFA Loans”) in the aggregate principal amount of approximately $ 145 million, plus all
accrued interest and any other related obligations, will be exchanged, at the election of
each holder of the CFA Loans (the “CFA Lenders”), for either (i) such CFA Lender’s pro
rata share of Sherritt’s interest in the Ambatovy Joint Venture (including its equity
ownership in, and the subordinated loan obligations owed from, the Ambatovy Joint
Venture) (collectively , the “ Ambatovy Interests ”) or (ii) an amended CFA Loan (an
“Amended CFA Loan”).
Any Amended CFA Loans issued pursuant to the Transaction will be on substantially
similar terms as the existing CFA Loans, subject to the following: (i) Sherritt’s subsidiary
through which Sherritt holds its Ambatovy Interests, Madagascar Mineral Investments Ltd.
(“MMI”), will be the sole borrower under the Amended CFA Loans; (ii) Sherritt will have no
obligations in respect of the Amended CFA Loans and there will be no recour se
whatsoever against Sherritt in respect of the Amended CFA Loans; and (iii) the CFA
Lender will have the right under the Amended CFA Loan, for up to 12 months following
implementation of the Transaction, to direct MMI to transfer such CFA Lender’s pro ra ta
share of the Ambatovy Interests as directed by such CFA Lender in consideration for the
full and final settlement of the CFA Lender’s Amended CFA Loan at such time.
Subject to the satisfaction or waiver of the applicable conditions to the Transaction, it is
expected that the Transaction will be completed by the end of April, 2020.
Certain key terms of the New Second Lien Notes are also set out in a Schedule to this news
release.
Following the Corporation’s detailed review process and careful consideration of various potential
strategic options and alternatives to address the Corporation’s over -leveraged capital structure,
upcoming debt maturities and liquidity challenges , and taking into account, among other things,
the various industry and geopolitical challenges impacting the Corporation, the terms of the
Transaction and the anticipated benefits of the Transaction for the Corporation and its
stakeholders, the opinions of Paradigm Capital (discussed below), and legal and financial advice
from the Corpo ration’s professional advisors, the board of directors of Sherritt (the “ Board of
Directors”) unanimously determined that the Transaction is the best available alternative for and
in the best interests of the Corporation and its stakeholders at this time. The Board of Directors
recommends that the Noteholders and CFA Lenders (co llectively, the “ Debtholders”) vote in
favour of the Transaction.
Paradigm Capital Inc. (“ Paradigm Capital”), an independent financial advisor to the Board of
Directors, has provided opinions to the Board of Directors that: ( i) the Noteholders and the CFA
Lenders, respectively, would be in a better position , from a financial point of view, under the
Transaction than if the Corporation were liquidated; and (ii) the Transaction is fair, from a financial
point of view, to the Corporation.
Lender Consent Agreement
In connection with the Transaction, the Corporation has also entered into a consent agreement
with the senior lenders in respect of its senior revolving bank facility (the “ Revolving Bank
Facility”), pursuant to which the Corporation and such lenders have, among other things, agreed
that the Corporation will commence the CBCA Proceedings and pursue the Transaction pursuant
thereto, and that the Corporation and the senior lenders will work to complete an amendment of
Revolving Bank Facility substantially concurrently with or prior to the implementatio n of the
Transaction to permit the implementation of the Transaction, including, without limitation, the
issuance of the New Second Lien Notes , subject to the terms of such consent agreement . The
maturity of the Revolving Bank Facility is currently April 30, 2020.
Stated Capital Reduction
In connection with the Transaction, it is anticipated that the Corporation will reduce the stated
capital of its common shares to $ 575 million (the “Stated Capital Reduction”) as a preliminary
step to the implementation of the Transaction under the CBCA Proceedings. The Stated Capital
Reduction will not impact the Corporation’s current number of common shares issued and
outstanding. The Board of Directors recommends that holders of the Corporation’s common
shares (the “Shareholders”) vote in favour of the Stated Capital Reduction.
CBCA Proceedings
Pursuant to the CBCA Proceedings, Sherritt obtained today an interim order (the “Interim Order”)
issued by t he Ontario Superior Court of Justice (Commercial List) (the “ Court”), among other
things, authorizing the holding of (i) a meeting of the Debtholders (the “Debtholders’ Meeting”)
to consider and vote upon a resolution to approve the Plan of Arrangement to implement the
Transaction, and (ii) a meeting of the Shareholders (the “Shareholders’ Meeting”, and together
with the Debtholders’ Meeting, the “Meetings”) to consider and vote upon a resolution to approve
the Stated Capital Reduction (the “ Stated Capital Reduction Resolution”). The Interim Order
also granted other relief, including a stay of proceedings in favour of Sherritt and its subsidiaries
in respect of any defaults under the Existing Notes or the CFA Loans or any defaults arising as a
result of the CBCA Proceedings or steps relating to the Transaction.
The Meetings, Voting and Early Consent Matters
The Meetings are scheduled to be held at the offices of Goodmans LLP at 333 Bay Street, Suite
3400, Toronto, Ontario M5H 2S7 on April 9, 2020. Pursuant to the Interim Order, the Debtholders’
Meeting is scheduled to begin at 10:00 a.m. (Toronto time) and the Shareholders’ Meeting is
scheduled to begin at 10:30 a.m. (Toronto time).
The record date (the “ Record Date”) for voting at the Meeting s is expected to be 5:00 p.m.
(Toronto time) on March 6, 2020.
Debtholders as at the Record Date will be entitled to vote on the Plan of Arrangement at the
Debtholders’ Meeting based on one vote per C$1,000 of principal amount of Existing Notes and/or
CFA Loans, as applicable, owing to such Debtholder. The Noteholders and CFA Lenders will
vote together as a single class at the Debtholders’ Meeting.
Shareholders as at the Record Date will be entitled to vote on the Stated Capital Reduction
Resolution at the Shareho lders’ Meeting based on one vote per common share held as at the
Record Date.
For Noteholders to be eligible to receive Noteholder Early Consent Cash Consideration,
Noteholders must submit a vote in favour of the Plan of Arrangement by the Early Consent
Deadline of 5:00 p.m. (Toronto time) on March 27, 2020, as such date may be extended by
Sherritt.
The deadline for Debtholders and Shareholders to submit their proxies or voting instructions in
order to vote on the items to be considered at the applicable Meeting is 5:00 p.m. (Toronto time)
on April 7, 2020 (the “Voting Deadline”).
Banks, brokers or other intermediaries (each an “ Intermediary”) that hold Existing Notes or
common shares of Sherritt on a securityholder’s behalf may have internal deadlines that require
such securityholders to submit their votes by an earlier date in advance of the Early Consent
Deadline and/or the Voting Deadline, as applicable, and may have internal requirements for the
submission of voting instructions. Such s ecurityholders are encouraged to contact their
Intermediaries directly to confirm any such internal deadlines or voting instruction requirements.
To be approved at the Debtholders’ Meeting, the Plan of Arrangement requires the affirmative
vote of at least 66 2/3% of the votes cast at the Debtholders’ Meeting , and to be approved at the
Shareholders’ Meeting, the Stated Capital Reduction Resolution requires the affirmative vote of
at least 66 2/3% of the votes cast at the Shareholders’ Meeting.
Court Approval and Implementation
If the Plan of Arrangement is approved by the requisite majority at the Debtholders’ Meeting, the
Applicants will attend a hearing before the Court scheduled for April 16, 2020, or such other date
as may be set by the Court, to seek Court approval of the Plan of Arrangement.
Completion of the Transaction pursuant to the Plan of Arrangement will be subject to, among
other things, approval of the Plan of Arrangement by the requisite majority of the Debtholders at
the Debtholders’ Meeting, approval of the Plan of Arrangement by the Court and the satisfaction
or waiver of the other applicable conditions precedent to the Plan of Arrangement. If all requisite
approvals are obtained and the other conditions to completion of the Transaction are satisfied or
waived, it is expected that the Transaction will be completed at the end of April 2020. Upon
implementation, the Plan of Arrangement would bind all Debtholders of the Corporation.
Pursuant to the Plan of Arrangement, Sherritt will have the r ight to implement the transactions
relating to the CFA Loans described above (the “ CFA Loan Transactions ”) on a contractual
basis with the CFA Lenders outside of the Plan of Arrangement, or to implement such other
transactions in respect of the CFA Loans that may be acceptable to Sherritt and the CFA Lenders
and that are not materially inconsistent with the effect of the CFA Loan Transactions, pursuant to
the Plan of Arrangement or on a contractual basis with the CFA Lenders outside of the Plan of
Arrangement.
As part of the Court approval of the Plan of Arrangement, the Corporation expect s to seek a
permanent waiver of potential defaults resulting from the commencement of the CBCA
Proceedings or the steps or transactions related to the CBCA Proceedings or Transaction, on the
terms set forth in the Plan of Arrangement.
Additional Information and Materials
Sherritt will be making available on its website at www.sherritt.com a presentation setting out
additional information and background with respect to the Transaction.
The Corporation’s management information circular for the Meetings (the “Circular”) will contain,
among other things, information regarding procedures for voting on and making elections in
respect of the Plan o f Arrangement and eligibility for Noteholder Early Consent Cash
Consideration pursuant to the terms of the Interim Order and the Plan of Arrangement, as well as
other background and material information regarding the Transaction. Debtholders and
Shareholders are encouraged to review the Circular in detail.
The Circular, forms of proxies and voting information and election forms will also be available as
follows:
on Sherritt’s website at www.sherritt.com;
under Sherritt’s SEDAR profile at www.sedar.com; and/or
through Kingsdale Advisors by calling toll free at 1 -800-749-9197 or 416-867-2272 or by
email at [email protected].
Any questions or requests for further information regarding voting at the Meetings or eligibility for
Noteholder Early Consent Cash Consideration should be directed to Kingsdale Advisors at 1-800-
749-9197 or 416-867-2272, or by email at [email protected].
The Corporation’s legal advisor in connec tion with the Transaction is Goodmans LLP and its
financial advisor is National Bank Financial Inc.
This news release is not an offer of securities for sale in the United States. The securities to be
issued pursuant to the Transaction have not been and will not be registered under the U.S.
Securities Act of 1933 (the “ 1933 Act”), or the securities laws of any state of the United States,
and may not be offered or sold within the United States except pursuant to an exemption from the
registration requirements of the 1933 Act. The securities to be issued pursuant to the Transaction
will be issued and distributed in reliance on the exemption from registration set forth in Section
3(a)(10) of the 1933 Act (and similar exemptions under applicable state securities laws).
About Sherritt
Sherritt is a world leader in the mining and refining of nickel and cobalt from lateritic ores with
projects, operations and investments in Canada, Cuba and Madagascar. The Corporation is the
largest independent energy producer in Cuba, with extensive oil and power operations across the
island. Sherritt licenses its proprietary technologies and provides metallurgical services to mining
and refining operations worldwide. The Corporation’s common shares are listed on the Toronto
Stock Exchange under the symbol “S”.
For more information, please contact:
Joe Racanelli, Director of Investor Relations
Telephone: 416-935-2457
Email: [email protected]
www.sherritt.com
Forward-Looking Statements
This news release contains certain forward-looking statements. Forward-looking statements can
generally be identified by the use of statements that include such words as “be lieve”, “expect”,
“anticipate”, “intend”, “plan”, “forecast”, “likely”, “may”, “will”, “could”, “should”, “suspect”, “outlook”,
“projected”, “continue” or other similar words or phrases. Specifically, forward-looking statements
in this document include, b ut are not limited to, statements set out in this news release relating
to: the key terms of the Transaction and the effect of its implementation on the Debtholders, other
stakeholders and the Corporation; the holding and timing of, and matters to be considered at the
Meetings as well as with respect to voting at such Meetings; the expected timing of the Record
Date; the Corporation’s intent to reduce its debt and annual interest payments through the
implementation of the Transaction pursuant to the Plan of Arrangement; the capital structure of
the Corporation following the implementation of the Transaction; the expected process for and
timing of implementing the Transaction; the anticipated Stated Capital Reduction and the effect
thereof; the public posting of materials and information related to the Transaction; the anticipated
repayment of the New Second Lien Notes; and the effect of the Transaction.
Forward-looking statements are not based on historic facts, but rather on current expectations,
assumptions and projections about future events, including matters relating to the proposed
Transaction; commodity and product prices and demand; the level of liquidity; production results;
realized prices for production; earnings and revenues; and certain objectives , goals and plans.
By their nature, forward looking statements require the Corporation to make assumptions and are
subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts,
conclusions or projections will not pro ve to be accurate, that those assumptions may not be
correct and that actual results or payments may differ materially from such predictions, forecasts,
conclusions or projections.
The Corporation cautions readers of this news release not to place undue reliance on any forward-
looking statement as a number of factors could cause actual future results, conditions, actions or
events to differ materially from the targets, expectations, estimates or intentions expressed in the