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Lenders hold off on talks for Vale's US$3bn credit facility

By Aaron Weinman

NEW YORK, Jan 31 (LPC) - Lenders in discussions with Brazilian mining company Vale SA over a potential US$3bn revolving credit facility are expected to hold off on launching a new loan for the miner, as Vale handles backlash from the January 25 collapse of a tailings dam at its Corrego do Feijão mine that has so far resulted in more than 84 deaths and hundreds more missing.

Vale earlier this month sent out a request for proposals to its relationship banks for a five-year credit facility, three sources had told LPC. The company was poised to mandate a group of lenders to lead the facility in coming weeks, but the extent of the damage and the humanitarian cost of the collapse has relationship bankers seeking clarification from Vale over related liabilities before advancing terms of a new syndicated loan, two of the sources said.

"We are concerned with the collapse and need the company to explain how they are addressing this before going ahead with a new deal," said one loans banker that has worked with Vale in the past.

Vale declined to comment on its debt raising efforts and said that any new transactions would be disclosed to the market at an appropriate time.

Vale's Feijão mine accounts for less than 2% of the company's total 390 million ton annual output of iron ore, according to a report from Moody's Investors Service on Thursday. The collapse, however, is expected to raise environmental, administrative, criminal and civil liabilities for Vale.

The company said it has suspended dividend payments, share buybacks and bonus payments to executives in a bid to free up cash to repair the affected areas and assist victims.

Moody's has kept Vale's credit rating at Baa3, but placed it on review for downgrade after the collapse. Fitch Ratings downgraded the miner on Monday to BBB- from BBB+ because it also expects Vale to incur heavy reparation costs from the dam collapse.

S&P Global also rates the company BBB-.

These ratings are on the lowest rung of the investment-grade rankings.

The dam collapse at Feijão comes less than four years after a similar collapse at the Samarco mine in Brazil, which left 19 people dead in 2015. Vale co-owns Samarco Mineração through a joint venture with Anglo-Australian multinational BHP Group, formerly known as BHP Billiton.

Moody's said the financial penalties related to Feijão may be even greater for Vale than what the miner incurred for Samarco due to the higher number of deaths and because Feijão is Vale's sole responsibility.

Vale had US$6.1bn in cash and US$5bn in committed credit facilities at the end of September, according to its financial reports. The company recorded approximately US$36bn in revenue for the 12 months through September 2018.

"The authorities will check all their dams because it is the second time something like this has happened in a short time, so I expect them to face a lot of scrutiny," said a second loans banker that has also conducted past business with Vale.

A potential new five-year credit facility would replace Vale's US$3bn five-year revolving credit line that matures in May 2020, sources previously told LPC. Vale also has a US$2bn five-year facility that will mature in June 2022.

The US$3bn revolving credit line, signed in May 2015, paid 85bp over Libor, while the US$2bn facility was signed in June 2017 at 110bp over Libor, sources said.

Vale is one of the world's largest producers of iron ore and nickel. (Reporting by Aaron Weinman; Editing by Lynn Adler and Leela Parker Deo)