from First Quarter 2010
Corporate Board Member
by Sharon Kahn
Coeur d’Alene Mines Corp., one of the world’s largest silver producers, did just what the experts suggest, stepping up its regular communications with S&P when it looked likely to lose the credit agency’s B- rating. But S&P downgraded Coeur anyway, to CCC, citing the drop in silver prices and the Idaho company’s plan to dig three new mines. Seven months later, however, it restored Coeur’s old rating—and the company now says it hopes for a higher one yet.
Aware that a downgrade was possible, and long before it happened, Coeur’s chairman and CEO, Dennis Wheeler, 68, had already designated CFO Mitchell J. Krebs as the company’s point person with S&P, essentially putting him in charge of damage control. “I spent a lot of time in New York in the fall of 2008 explaining our business, both from a 30,000-foot overview of our strategy and our more micro plans to reduce debt levels,” says Krebs. Frequent phone calls and visits continued through early 2009. “Just as I do with the equity analysts who follow Coeur, I walked our S&P analyst through each quarterly earnings report,” Krebs says. “I let him know what was happening with the new mines [in Bolivia, Mexico, and Alaska] and when we raised money. I described how cash flow from production changed over this period.”
One of the most helpful approaches involved asking the analyst what metrics S&P considered important in keeping track of Coeur’s expensive debt. “That gave me a sense of where to focus our efforts and communications,” says Krebs.
The analyst was open to Coeur’s strategy, Krebs recalls, but was evidently far from certain the company could execute it. And the downgrade, when it came in January of last year, hit hard. “Banks already weren’t lending, but private placements, equity, debentures, and other forms of structured finance either disappeared or became more expensive,” says Krebs. “Also, our share price immediately dropped by 10% to 15% because the downgrade made equity investors think twice about buying shares.”
He says that three things persuaded S&P to restore the company’s B- rating, which it did in August. First, production from the new mines in Bolivia and Mexico began to bolster revenues. Second, precious-metal prices rebounded, which aided cash flow. And third, Coeur both restructured and reduced its debt.
With its old rating back, the company has been able to pursue more traditional bank loans, says Krebs. “We expect to set up credit lines to fund working capital in our Mexican mine and to complete construction of our third mine, in Alaska. As we continue to demonstrate that we’re meeting the milestones I’ve presented to S&P, we expect to move our rating higher,” he says. Investors, meanwhile, have struck their own gold from all of this, watching share prices climb by nearly 100% through December.
Topic tags: corporate governance, finance
Related Article:
Why Risking a Lower Credit Rating Can Make Good Strategic Sense