Fitch Ratings - New York - 23 Aug 2022: Fitch Ratings has downgraded Mountain Province Diamonds Inc.'s Issuer Default Rating (IDR) to 'CC' from 'CCC'. Fitch has also downgraded the senior secured notes to 'CC'/'RR4' from 'CCC'/'RR4'.
The downgrade reflects the increasing uncertainty MPVD will be able to obtain financing to address the notes due December 2022 and Fitch's view that the company may need to pursue a destressed debt exchange in the next four months in order to avoid bankruptcy.
Currently, MPVD's ability to secure additional financing to refinance the notes remains highly uncertain, although Fitch views this as partially offset by a supportive majority shareholder, Mr. Dermot Desmond.
KEY RATING DRIVERS
Restructuring Likely Required: A default in the next four months is a real possibility if MPVD is unable to refinance the notes due December 2022. Fitch believes there is heightening uncertainty MPVD will be able to refinance the notes given the notes are maturing in the next four months with no solution yet in place, in addition to recent defaults in the sector which may result in lender fatigue for MPVD. Fitch believes MPVD may need to pursue a destressed debt exchange if alternative financing is unavailable or at acceptable terms.
Near-Term Maturities Pressure Liquidity: As of June 30, 2022, MPVD had cash and cash equivalents of CAD29 million (before repayment of CAD12.873 million of junior revolving credit facility obligations due December 2027). Given MPVD's relatively small size, any shortfall in business performance could exhaust minimal liquidity. The operation of single mine heightens the risk of operational disruptions. Fitch views MPVD's weak liquidity as partially offset by a supportive majority shareholder.
Fitch believes Mr. Desmond will likely continue to be supportive and work with MPVD to find a solution for the upcoming notes maturity. However, Fitch expects liquidity to be relatively minimal and a suspension of mining activity, a period of low prices or business underperformance could quickly erode liquidity.