Sherritt International Corp. press release
Sherritt Announces Transactions to Extend Debt Maturities and Strengthen its Capital Structure
TSX - Toronto Stock Exchange · Nickel · Cobalt · Sulfur · Copper · Zinc · Natural Gas · Oil · Canada
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Sherritt International Corporation (“ Sherritt ” or the “ Corporation ”) (TSX:S) announced today a proposed transaction (the “ CBCA Transaction ”) to extend the maturities of the Corporation’s notes obligations and strengthen the Corporation’s capital structure.
The CBCA Transaction, described in further detail below, will extend the maturities of the Corporation’s notes obligations to November 2031, subject to certain conditions, and reduce Sherritt’s total outstanding notes obligations by up to approximately $32 million by exchanging Sherritt’s existing notes obligations, comprised of (i) 8.50% senior second lien secured notes due November 30, 2026 (the “ Senior Secured Notes ”); and (ii) 10.75% unsecured PIK option notes due August 31, 2029 (the “ Junior Notes ”, and together with the Senior Secured Notes, the “ Existing Notes ”), for amended 9.25% senior second lien secured notes due November 30, 2031 (the “ Amended Senior Secured Notes ”) and certain early consent consideration. The CBCA Transaction will be implemented through a corporate plan of arrangement (the “ CBCA Plan ”) in the proceedings (the “ CBCA Proceedings ”) commenced today by Sherritt and its subsidiary, 16743714 Canada Inc. (collectively, the “ Applicants ”), under the _Canada Business Corporations _Act (the “ CBCA ”), as discussed further below.
In connection with the CBCA Transaction, the Corporation and certain holders of Existing Notes (“ Noteholders ”) holding, in aggregate, approximately 42% of the outstanding Senior Secured Notes (the “ Initial Consenting Noteholders ”), have entered into a consent and support agreement (the “ Support Agreement ”) pursuant to which and subject to its terms, the Initial Consenting Noteholders have agreed to, among other things, support the CBCA Transaction and vote in favour of the CBCA Plan.
“Today’s announcement marks the culmination of our dedicated multiyear effort to strengthen our financial position,” said Leon Binedell, President and CEO of Sherritt. “After carefully evaluating numerous strategies, we are confident that these transactions represent the optimal path for all our stakeholders to address the upcoming maturity of Sherritt’s debt. The completion of these transactions will represent a transformative milestone that will significantly improve our capital structure, extend the maturity of our debt obligations to up to late 2031, decrease our debt outstanding, lower our annual interest expense and enhance our overall financial flexibility. We will not only address the upcoming debt maturities, but also strategically position Sherritt to navigate beyond the present challenging market environment, paving the way for a return to growth and long-term success.”
The Corporation also announced today a transaction to be implemented immediately following the completion of the CBCA Transaction (the “ Subsequent Exchange Transaction ”), described below, that would further reduce the Corporation’s outstanding indebtedness and annual interest expense. In connection with the Subsequent Exchange Transaction, the Corporation and the Initial Consenting Noteholders (in such capacity, the “ Subsequent Exchange Noteholders ”) have entered into exchange agreements (the “ Exchange Agreements ”) pursuant to which and subject to their terms, the Subsequent Exchange Noteholders would, immediately after the implementation of the CBCA Transaction, exchange a portion of the Amended Senior Secured Notes received by such Subsequent Exchange Noteholders under the CBCA Plan, at par, for 99,000,000 newly-issued common shares of the Corporation at an exchange price of $0.173 (the “ Exchange Price ”) (with such shares issued not exceeding 19.9% of the total common shares of the Corporation outstanding following the implementation of the Subsequent Exchange Transaction). The Exchange Price and aggregate number of newly-issued common shares (with such shares issued not exceeding 19.9% of the total common shares outstanding following the implementation of the Subsequent Exchange Transaction) may be subject to adjustment based on the terms of the Exchange Agreements. The Subsequent Exchange Transaction does not form part of the CBCA Transaction or the CBCA Plan, and is conditional on, among other things, the implementation of CBCA Transaction.
The CBCA Transaction and Subsequent Exchange Transaction do 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.
Background to the CBCA Transaction
Sherritt has been challenged for many years by historical debt levels. This historical debt relates primarily to investment in the development of a former joint venture project that is no longer in Sherritt’s portfolio of assets. Reducing its level of debt and related interest expense have been and continue to be strategic priorities for Sherritt to improve its long-term financial strength. To that end, Sherritt has made significant progress, eliminating over $575 million of note and other debt obligations from its balance sheet over the past approximately seven years.
Beyond repayment of debt, there have been a number of strategic initiatives undertaken by the Corporation to strengthen its financial position and address its upcoming debt maturities; however, since 2023, nickel and cobalt prices have declined significantly, reaching their lowest levels in four years and eight years, respectively, during the fourth quarter of 2024, reducing the Corporation’s ability to generate excess cash for further material debt repayments. Key strategic initiatives include:
Moa Joint Venture Expansion Program: In November 2021, Sherritt announced the Moa Joint Venture would embark on a low cost, low capital expansion program. Phase one, the Slurry Preparation Plant (“ SPP ”), was completed under budget and ramped up to design capacity in early 2024. The SPP delivers a number of benefits, including reduced ore haulage, lower carbon intensity from mining and increased throughput over the life of mine. Phase two, the Processing Plant Expansion, remains scheduled for commissioning and ramp up in the first half of 2025. With the completion of phase two, annual mixed sulphide precipitate production is expected to further increase toward the combined expansion target, of approximately 20% of contained nickel and cobalt, and is expected to fill the refinery to nameplate capacity to maximize profitability from the joint venture’s own mine feed, displacing lower margin third-party feeds and increasing overall finished nickel and cobalt production. Cobalt Swap Agreement: In October 2022, Sherritt finalized a cobalt swap agreement (the “ Cobalt Swap ”) with its Cuban partners to recover $368 million of total outstanding Cuban receivables over five years beginning January 1, 2023, supporting Sherritt’s strategic objective of strengthening its balance sheet by reducing reliance on its Cuban partners’ ability to access foreign currency to repay amounts owed to Sherritt. In 2023, Sherritt successfully completed the first year of the Cobalt Swap which included receipt of 2,082 tonnes of cobalt from the Moa Joint Venture which was sold by Sherritt, realizing cash receipts of $80.3 million, a cash dividend of $64.0 million, and a corresponding reduction in its receivable from General Nickel Company S.A. (“ GNC ”, 50% partner in the Moa Joint Venture) of $76.0 million. In 2024, due to lower prices of nickel and cobalt, Sherritt focused efforts to maximize distributions under the Cobalt Swap and during the fourth quarter, received $29.8 million, including $23.7 million in cash and 223 tonnes of finished cobalt valued at $6.1 million (including both Sherritt’s share and GNC’s redirected share). Sherritt had finalized the Cobalt Swap agreement in 2022, to repay debt with the annual minimum amounts. Although Sherritt received the annual minimum amount in 2023, the prices of nickel and cobalt subsequently decreased, which reduced Sherritt’s ability to receive subsequent annual minimum amounts. Energas S.A. (“Energas”) Joint Venture Agreement: In October 2022, Cuba’s Executive Committee of the Council of Ministers approved the twenty-year extension of Energas’ Joint Venture generation contract with the Cuban government to March 2043. The extension of this economically beneficial contract supports Sherritt’s on-going investments in Cuba, helps facilitate the Cobalt Swap and supports Cuba’s long-term energy security. Moa Joint Venture Life of Mine Extension: In March 2023, Sherritt filed a National Instrument 43-101 – _Standards of Disclosure for Mineral Projects _compliant technical report outlining a newly developed strategic life of mine plan based on an economic cut-off grade methodology, extending the mine life to 2048 based on proven and probable mineral reserves, an increase of 14 years. Energas Optimizations: In 2023, two new gas wells went into production with Unión Cuba-Petróleo providing gas free of charge to Energas for power generation, driving a 31% year-over-year increase in electricity production at Sherritt’s Power division. In 2024, maintenance work was completed on three gas turbines in part to bring online an additional turbine to process gas being received from a third new gas well that was brought into production during the year. Electricity production at Sherritt’s Power division increased a further 10% year-over-year in 2024. Dividends in Canada from Energas have increased from $1.4 million in 2023 to $13.0 million in 2024. In 2025, dividends in Canada from Energas are expected to significantly increase to be between $25 million to $30 million. 1
The Corporation is facing the maturity of its Senior Secured Notes on November 30, 2026. On maturity, Sherritt will be required to repay or refinance these obligations of over $220 million (plus interest and applicable premiums). Addressing the upcoming maturity under the Senior Secured Notes is also necessary to put Sherritt in a position to extend its revolving-term credit facility (the “ Revolving Bank Facility ”) which currently matures on April 30, 2026.
Sherritt, with the assistance of its legal and financial advisors, undertook a detailed and proactive review of potential available alternatives including, among other things, refinancing the Existing Notes, extending the maturities of the Senior Secured Notes and/or Junior Notes, exchanging some or all of the Junior Notes for secured debt, exchanging debt for equity, raising equity and/or new debt financing from third parties to repay all or a portion of the Existing Notes, purchasing Existing Notes for cancellation, as well as maintaining the status quo.
Following this review of a broad range of possible alternatives, Sherritt concluded that extending the upcoming 2026 maturity of the Senior Secured Notes and reducing its outstanding debt obligations and associated interest expense is in the best interests of the Corporation to put it in a better financial position, create financial and operational stability, and maximize stakeholder value.
The Corporation has periodically engaged with noteholders and shareholders to listen to and address their views on the Corporation’s business and capital structure. The Corporation takes the interests of its various stakeholders seriously and has sought to balance the interests of all stakeholders in a fair and reasonable manner in connection with developing and advancing the CBCA Transaction and the Subsequent Exchange Transaction.
Key CBCA Transaction Terms
The CBCA Transaction has the following key elements:
All of the Corporation’s outstanding Senior Secured Notes will be exchanged for Amended Senior Secured Notes on the implementation date of the CBCA Plan (the “ Effective Date ”) as follows: each holder of Senior Secured Notes (a “ Senior Secured Noteholder ”) shall receive as consideration in exchange for its Senior Secured Notes: Amended Senior Secured Notes in a principal amount equal to the principal amount of Senior Secured Notes held by such Senior Secured Noteholder as at immediately prior to the Effective Time (as defined in the CBCA Plan); and a cash payment in the amount of accrued and unpaid interest outstanding in respect of the Senior Secured Notes (calculated at the contractual non-default rate) held by such Senior Secured Noteholder up to but not including the Effective Date;
each Senior Secured Noteholder that is not an Initial Consenting Noteholder and that votes in favour of the CBCA Plan prior to 5:00 p.m. on March 25, 2025, or such later date as the Corporation may determine (the “ Early Consent Deadline ”) (each, an “ Early Consenting Senior Secured Noteholder ”) shall receive an additional cash payment in an amount equal to 3% of the principal amount of Senior Secured Notes voted in favour of the CBCA Plan by the Early Consent Deadline and held by such Early Consenting Senior Secured Noteholder as at immediately prior to the Effective Time; and each Initial Consenting Noteholder that votes in favour of the CBCA Plan prior to the Early Consent Deadline (each an “ Initial Early Consenting Senior Secured Noteholder ”) shall receive an additional cash payment in an amount equal to 4% of the principal amount of Senior Secured Notes voted in favour of the CBCA Plan by the Early Consent Deadline and held by such Initial Early Consenting Senior Secured Noteholder as at immediately prior to the Effective Time.
All of the Corporation’s outstanding Junior Notes will be exchanged for Amended Senior Secured Notes on the Effective Date (the “ Junior Notes Exchange ”) as follows: each holder of Junior Notes (a “ Junior Noteholder ”) shall receive, as consideration in exchange for its Junior Notes (together with all accrued and unpaid interest in respect of the Junior Notes up to the Effective Date), Amended Senior Secured Notes in a principal amount equal to 50% of the principal amount of Junior Notes held by such Junior Noteholder as at immediately prior to the Effective Time; and each Junior Noteholder that votes in favour of the CBCA Plan prior to the Early Consent Deadline (each, an “ Early Consenting Junior Noteholder ”) shall receive, as additional consideration in exchange for its Junior Notes, additional Amended Senior Secured Notes in a principal amount equal to 5% of the principal amount of Junior Notes voted in favour of the CBCA Plan by the Early Consent Deadline and held by such Early Consenting Junior Noteholder as at immediately prior to the Effective Time.
The Corporation and the Majority Initial Consenting Noteholders (as defined in the Support Agreement) shall have the right to amend the CBCA Plan to remove the Junior Notes Exchange from the CBCA Plan. Such amendments to the CBCA Plan shall be in form and substance acceptable to the Corporation and the Majority Initial Consenting Noteholders, and (i) if such amendments are made prior to the Noteholders’ Meetings (as defined below), such amended CBCA Plan shall only be required to be approved at the Senior Secured Noteholders’ Meeting (as defined below) as set forth under the Interim Order (as defined below), and (ii) if such amendments are made after the Noteholders’ Meetings, such amended CBCA Plan shall not require any further Noteholders’ Meetings or votes by Noteholders in respect thereof, and shall be subject to approval of the Court (as defined below). The Amended Senior Secured Notes will be issued pursuant to an amended and restated notes indenture (the “ Amended and Restated Senior Secured Notes Indenture ”) on the Effective Date. The Amended and Restated Senior Secured Notes Indenture will be on substantially similar terms and conditions as the existing notes indenture governing the Senior Secured Notes (the “ Senior Secured Notes Indenture ”), subject to certain amendments to be described in the Circular (as defined below) and the Description of Notes to be attached thereto (the “ Notes Amendments ”). Certain key terms of the Notes Amendments are also summarized in the Schedule to this news release. In the event the Junior Notes Exchange is not completed pursuant to the CBCA Plan and any Junior Notes remain outstanding as at June 30, 2029, the maturity date of the Amended Senior Secured Notes shall be June 30, 2029 (rather than November 30, 2031). Subject to the satisfaction or waiver of the applicable conditions to the CBCA Transaction, it is expected that the CBCA Transaction will be completed in April 2025.
Key Subsequent Exchange Transaction Terms
The Subsequent Exchange Transaction has the following key elements:
Pursuant to the Exchange Agreements and subject to their terms, immediately following the implementation of the CBCA Transaction, the Subsequent Exchange Noteholders will exchange a portion of the Amended Senior Secured Notes received by such Subsequent Exchange Noteholders under the CBCA Plan, at par, for 99,000,000 newly-issued common shares of the Corporation at an exchange price of $0.173 (with such shares issued not exceeding 19.9% of the total common shares of the Corporation outstanding following the implementation of the Subsequent Exchange Transaction). The Exchange Price and aggregate number of newly-issued common shares (with such shares issued not exceeding 19.9% of the total common shares outstanding following the implementation of the Subsequent Exchange Transaction) may be subject to adjustment based on the terms of the Exchange Agreements. Upon implementation of the Subsequent Exchange Transaction, the Corporation and each of the Subsequent Exchange Noteholders will enter into put agreements (the “ Put Agreements ”), which provide, among other things, that the Subsequent Exchange Noteholders shall be entitled to require the Corporation to repurchase, in aggregate, $45 million of Amended Senior Secured Notes from the Subsequent Exchange Noteholders on four scheduled repurchase dates (the “ Scheduled Repurchase Dates ”) at a purchase price equal to 105% of the principal amount of Amended Senior Secured Notes so purchased, provided that the Corporation shall have the option to repurchase such Amended Senior Secured Notes at par at any time up to 120 days prior to the applicable Scheduled Repurchase Date. Upon implementation of the Subsequent Exchange Transaction, the Corporation and one of the Subsequent Exchange Noteholders will enter into an investor rights agreement (the “ Investor Rights Agreement ”). The Investor Rights Agreement will provide such Subsequent Exchange Noteholder with certain rights as long as it owns at least 10% of the outstanding common shares of the Corporation, including the right to nominate one individual for election or appointment to the board of directors of Sherritt (the “ Board of Directors ”) and a pre-emptive right to participate in future common share offerings by Sherritt, and will require such Subsequent Exchange Noteholder to refrain from certain actions or share acquisitions, as to be further described in the Circular.
Following the Corporation’s detailed review process and careful consideration of various potential strategic alternatives to address the Corporation’s capital structure and upcoming debt maturities, and taking into account, among other things, the Corporation’s overall capital structure and financial condition, its debt levels and interest expense, challenging industry dynamics and geopolitical factors impacting the Corporation, the terms of the CBCA Transaction and the anticipated benefits of the CBCA Transaction for the Corporation and its stakeholders, the opinions of independent financial advisor, MPA Morrison Park Advisors Inc. (“ Morrison Park ”) (discussed below), and legal and financial advice from the Corporation’s professional advisors, the Board of Directors unanimously determined that the CBCA Transaction is in the best interests of the Corporation and its stakeholders.