At the same time, Fitch has assigned a 'B(EXP)' expected rating to MMC's proposed US-dollar senior exchange notes and new issuance with a Recovery Rating of 'RR4'. The final rating is contingent upon the receipt of final documents conforming to information already received.
The proposed notes will mature on the third anniversary of the exchange settlement date and will be jointly and severally issued by MMC and its wholly owned subsidiary, Energy Resources LLC.
We do not consider the proposed debt exchange transaction as default avoidance, despite the maturity extension for MMC's existing USD350 million senior secured notes due April 2024, as we believe MMC is able to accumulate sufficient cash to repay the notes, even without the proposed issuance.
The RWN takes into consideration the low cash buffer that will be available after the repayment of the notes due 2024, should the exchange offer fail, to manage variances in the operating environment. The inherent volatility and lack of predictability of the post repayment cash position is more consistent with a rating level that is one notch lower. We will remove the RWN and affirm the rating with a Stable Outlook if the exchange is completed at the terms communicated.
KEY RATING DRIVERS
Exchange to Address Refinancing Risk: The exchange offer is at par value, using a combination of cash and new notes, subject to a minimum acceptance of 75% of outstanding principal. A successful transaction would reduce the funding requirements for MMC's 2024 notes and would be credit positive, as it would improve the company's maturity profile.
Sufficient Cash for Repayment: If the proposed exchange fails, we expect that MMC would have the capacity to repay its 2024 notes with cash generated from operations, taking into consideration our forecast of a lower average selling price (ASP) in 2H23 and 1Q24. The outstanding balance of MMC's 2024 notes was USD350 million at mid-August 2023.