S&P Places Molycorp (MCP) on CreditWatch Positive; Will Need to Meet Financing Transaction Targets

Standard & Poor's Ratings Services said it placed its 'CCC' corporate credit and debt ratings on Greenwood Village, Colo.-based Molycorp Inc. (NYSE: MCP) on CreditWatch with positive implications. We expect to raise the corporate credit rating to 'CCC+' upon close of the $400 million financing transaction. We will review issue-specific ratings at that time and may or may not raise them, depending on recovery prospects in light of the new, secured financing.

Our rating action reflects the potential for our ratings on Molycorp to be raised. We believe that the up-front $250 million will provide sufficient liquidity for the company to meet cash flow obligations for the coming 12 months. The company will need to meet certain operational and financial targets to draw the remaining $150 million of the credit facility up until April 2016; it faces a $230 million debt maturity in June 2016.

We will raise the corporate credit rating to 'CCC+' upon successful closing of the transaction and will review issue-specific ratings in light of the transaction. The outlook would be negative, given the operational challenges of returning Mountain Pass to full production capacity. We will remove ratings from CreditWatch in the event the transaction does not proceed, and ratings would remain unchanged.

Key points:

• Molycorp Inc. has a commitment letter from Oaktree Capital Management L.P. to provide it with up to $400 million in secured financing through credit facilities and the sale and leaseback of certain equipment at its Mountain Pass facility.

• At the closing of the facilities, $250 million of the proceeds will be available and $150 million would be available until April 30, 2016, subject to Molycorp's achievement of certain operational and financial conditions.

• We are placing our 'CCC' corporate credit and issue-level ratings on Molycorp on CreditWatch with positive implications. Upon closing of the Oaktree financing and Molycorp's receipt of $250 million of proceeds, we would expect to raise the corporate credit rating to 'CCC+', reflecting our belief that Molycorp will be able to meet its operational and working capital needs over the subsequent 12 months

• We may or may not raise issue-level debt ratings, pending our analysis of the new transaction and its impact on recovery prospects for the company's outstanding senior secured notes and unsecured convertible notes.

• We expect the outlook to be negative, reflecting our view that Molycorp's business and financial condition will become increasingly precarious unless the Mountain Pass facility can be brought to full production capacity. Molycorp anticipates that this will occur by late 2014 or early 2015.

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