Standard & Poor's Rating Services (S&P) has
announced an update to its criteria for analysing streaming
transactions. Under the new criteria, many commodities streaming
transactions will be classified as a debt rather than non-debt
financing. This approach will impact S&P's analysis of
adjusted debt and related credit metrics, which in turn has the
potential to affect corporate issuer credit ratings.
In recent years streaming transactions have emerged as an
important financing option for mining issuers. A streaming
transaction is a transaction where a commodity producer sells
forward the right to a share of future production at a preset
price, which is typically at a significant discount to prevailing
market prices, in exchange for an upfront cash payment. Streaming
transactions have proven particularly effective at monetizing
by-product production upfront, for example where a base metals
miner yields or expects to yield some precious metals by-product
through its production process. For many issuers, streaming
transactions have provided much needed financing during a period
where equity financing has been tremendously challenging.
Streaming transactions have traditionally been viewed as
non-debt financing by the major credit ratings agencies, which in
turn has impacted their assessment of an issuer's adjusted debt
and other credit related metrics in their analysis of an
issuer's overall credit rating. The change in S&P's
approach has the potential to impact S&P's assessment of
these metrics, which could affect S&P's credit rating of
mining issuers that have entered into streaming transactions.
S&P has emphasized that the change in criteria will only affect
a small number of mining companies, and that it does not expect the
change in criteria to immediately affect its ratings of any
In evaluating whether a streaming transaction will be treated as
debt for the purposes of evaluating an issuer's credit rating,
S&P will focus on the following features:
Has the transaction been done in lieu of borrowing;
Is the stream repayable in cash in the event payment is not
satisfied via the delivery of product;
Does the counterparty have recourse to the issuer or a
guarantor in the case of an insolvency event;
Can repayment be accelerated upon an event of default; and
Whether there is a high level of overcollateralization or
security to production coverage or some other mechanism that
provides greater certainty of repayment.
At present, none of the other major credit ratings has indicated
that it will follow the change in criteria adopted by S&P.
Major and mid-tier issuers considering a streaming transaction
should consider S&P's new position as part of their overall
assessment of a potential transaction, particularly those issuers
who are concerned that their credit rating is sensitive to
The complete S&P bulletin is available on its website.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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