Teck’s debt repurchases save $43 million in annual interest expense

By Devika Patel

Knoxville, Tenn., Oct. 27 – Teck Resources Ltd. expects that its recent $1 billion of debt repurchases will result in a pre-tax gain of C$76 million and save the company $43 million in interest expense annually. The company said it plans to watch the bond markets for further repurchase opportunities as they arise.

“We’ve used some of the additional free cash flow to strengthen our balance sheet,” president and chief executive officer Donald R. Lindsay said on the company’s conference call announcing third-quarter earnings.

In September and October, the company bought back $750 million of its notes, he added, and in the past 12 months it has cut its debt by more than $1 billion.

“We expect to conclude the year with a higher cash balance even after having used C$1 billion for the debt repurchase which was not contemplated in our original targets,” senior vice president, finance and chief financial officer Ron Millos added on the call.

“For a while, we’ve talked about continuing to look for opportunities to repurchase debt. We’ve taken advantage of the additional free cash flow that we’re generating from the higher steel-making coal prices and we’ve acted on this initiative.

“In September and October, we repurchased debt with an aggregate principal amount of $759 million in private and open-market transactions, funding that from cash on the balance sheet.

“The repurchase was primarily comprised of the long bonds, including all notes with maturity dates in 2035 and longer as well as some of the 2023s. Of the total, $334 million settled in Q3. The balance settled in October and will be reflected in our Q4 results.

“In Canadian dollars and on a pre-tax basis the overall gain is C$76 million, of which C$49 million was recorded in Q3. We expect the remaining C$27 million in Q4 for the purchases that settled in October.

“And in U.S. dollar terms, we expect to save $43 million in interest expense annually as a result of these transactions. Over the lives of the various tranches, that adds up to a total interest savings of roughly $1 billion.

“The principal balance of our notes is now $6.1 billion and the transactions reduced our debt to debt plus equity ratio to about 33%.

“So in the past 12 months, we have retired just over $1 billion of our debt, or C$1.4 billion in Canadian dollar terms, and we remain focused on returning to an investment-grade rating and we may take the opportunity in the future to purchase further debt on an opportunistic basis from time to time.

“We’ll be watching how much cash builds ups and watching the trading in the bond market,” Millos said.

Highlights

Adjusted EBITDA was $830 million in the third quarter, more than double the $389 million recorded a year ago.

Gross profit before depreciation and amortization was $817 million in the third quarter compared with $670 million in the third quarter of 2015.

Cash flow from operations was $854 million in the third quarter of 2016 compared with $560 million a year ago.

Liquidity remains strong at C$4.7 billion inclusive of approximately C$690 million in cash at Oct. 26 and $3 billion of undrawn, committed credit facilities. The company expects that it will exceed its original target and end the year with a cash balance of approximately C$1 billion.

Based in Vancouver, B.C., Teck is a resource company focused on copper, steelmaking coal, zinc and energy.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.