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08 March 2019 by jbchevrel

Teck Resources (TCK) is a Canadian diversified mining company (copper, steelmaking coal, zinc and energy). Now in the tight quarter of the CDX HY, the name will be coming back in the CDX IG index from next March 20, after spending 3.5 years in HY. This is as TCK has been upgraded by Fitch to BBB- (=) in FEB and by Moody’s to Baa3 (=) in JAN. Now the 5y CDS pays c127bp, after ranging [100,200] over the past year or so. But due to its exposure to commodity price volatility, this CDS can be less well-behaved. In its history, this quite cyclical name has peaked ~1,500bp (GFC) and ~2,000bp (commo crash in 2015). It was a long way since then. Indeed, last year, TCK generated $4.9B EBITDA, from $4.3B $2.6B $1.6B the years before. FCF was +$1.1B from -$0.6B in 2015. Today it looks more credit-friendly than before the 2015 commodity slump, as dividend payout came from 50%+ to c5% now. Moreover, its net leverage has stabilized below 1x, over the past few quarters, and its liquidity position has improved to almost $6B. That being said, lower commodities, production disruptions, fast FCF burn due to high capex requirements remain potential risks.