S&P keeps Falconbridge on developing watch

Standard & Poor's said it kept its ratings on Falconbridge Ltd. on CreditWatch with developing implications after Inco Ltd. (BBB-/Watch developing) announced revised terms to its friendly takeover of Falconbridge.

Affected ratings include the company's subordinated debt at BB+.

The preservation of the investment-grade rating is premised on the key factors that include that Falconbridge has reduced its total debt burden by $1 billion since the transaction was first proposed in October 2005, thereby increasing the combined entity's pro forma debt capacity and mitigating the effect of Inco's enhanced bid, S&P said.

Prices for nickel, copper, zinc and aluminum have all strengthened well beyond the agency's base-case estimates, thereby sharply increasing both companies' liquidity and near-term cash generation and free operating cash flow and potential asset sales should ensure the combined entity's capacity to reduce debt by $2 billion in the next two years in accordance with the October 2005 proposal, the agency added.

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