UPDATE: S&P Raises Molycorp (MCP) to 'CCC+'; Sees Average Recovery of Principal, Interest in Default

(Updated - December 10, 2014 4:54 PM EST)

Standard & Poor's Ratings Services said today it raised its corporate credit rating on Molycorp Inc. (NYSE: MCP) to 'CCC+' from 'SD'. The outlook is negative.

We also raised our issue rating on the company's senior secured debt to 'CCC+' from 'CCC' but revised the recovery rating on the debt to '4' from '3', reflecting our expectation of average recovery (30%-50%) of principal and interest in the event of a default. We also removed the rating from CreditWatch, where we had placed it with positive implications on Sept. 4, 2014. At the same time, we raised our rating on the company's senior unsecured debt to 'CCC-' from 'D', and revised the recovery rating to '6' from '5', reflecting prospects of negligible (0%-10%) recovery of principal and interest in the event of a default.

Before our downgrade to 'SD', the corporate credit rating on Molycorp was 'CCC' and on CreditWatch with positive implications. The 'CCC+' corporate credit rating reflects improved liquidity prospects for the coming year as a result of the $400 million financing transaction completed on Sept. 11, 2014, with Oaktree Capital Management L.P, of which the company received $208 million of net proceeds up front. An additional $150 million would be available until April 30, 2016, subject to Molycorp's achievement of certain operational and financial conditions. Molycorp faces a $207 million debt maturity in June 2016. The lower recovery ratings on outstanding secured and unsecured debt reflect the priority of the $250 million financing, and thus, reduced recovery prospects.

"The negative outlook reflects 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," said Standard & Poor's credit analyst Cheryl Richer.

We would revise our outlook to stable when it is clear that Molycorp will meet the conditions to access the $150 million of delayed draw funds, and we believe that the company will continue to maintain sufficient liquidity to cover uses for at least the next 12 months.

We will lower ratings if we believe the company has insufficient resources to meet cash requirements within the upcoming 12 months, including its ability to retire or refinance its 3.25% convertible notes due June 2016.

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