Fortescue Metals Group Limited (ASX: FMG) has seen its share price fall 0.8% in trading so far today, after Moody's downgrading the company's credit ratings.
The ratings agency downgraded the miner's corporate family rating (CFR) from Ba2 to Ba3 and placed the company on negative outlook. The company's senior secured rating was downgraded from Ba1 to Ba2 and the senior unsecured rating from B1 to B2.
Moody's says there is a fundamental downward shift in the mining sector, including slowing economic growth of China. However, the ratings agency also said that it expects "Fortescue's operations will remain comfortably above breakeven levels under the ratings agencies' base case price assumptions."
Moody's also noted the company's "lower breakeven levels combined with the company's sizeable cash balances should allow Fortescue to continue to reduce debt levels and maintain a solid liquidity profile."
Fortescue has production costs that rival the two lowest cost iron ore producers in the world, BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) and those costs could even be lowered further thanks to a potential joint venture with Brazil's Vale to combine their ores, and the arrival of the first of eight specially-designed very-large ore carriers later this year.
In contrast to Moody's downgrade, both Fitch and Standard & Poors reaffirmed Fortescue's credit ratings in February. Moody's had previously downgraded Vale, BHP and Rio, so the company is not alone.
Fortescue had US$2.3 billion in cash and US$8.4 billion of debt at the end of December 2015, and is likely to continue to pay down its debts – much like it did in 2015, including more than US$1.1 billion in the last half year.
Foolish takeaway
The credit rating won't have much impact on Fortescue – and the company says it continues to focus on reducing operating and capital costs, which so far has done wonders for it.
