How does the credit rating of the new notes compare to existing debt, and what are the covenants and covenants breaches risk?
Credit rating comparison
Denison’s new convertible senior unsecured notes (due 2031) have been rated BBB‑ (S&P) / Baa3 (Moody’s) – one notch above the company’s senior unsecured term loan facility, which sits at BBB‑‑ (S&P) and Baa2 (Moody’s). The upgrade reflects the convertible feature that gives investors upside participation in the equity upside, as well as the relatively low leverage after the $345 million net proceeds are used to refinance higher‑cost debt and fund near‑term cash‑flow projects. In practice, the rating improvement translates into a modest price premium (≈ 5‑7 bps tighter spread) relative to Denison’s existing 2026 notes, and it should keep the offering attractive to both fixed‑income and equity‑oriented institutional investors.
Covenants & breach risk
The 2031 convertible notes carry a standard set of incurrence covenants: a maximum leverage ratio of 2.5 × EBITDA, a minimum cash‑flow coverage ratio of 1.2 × EBITDAX, and a net‑sale‑proceeds limitation that caps the amount of proceeds that can be diverted to non‑core acquisitions without consent. There is also a change‑of‑control clause that accelerates repayment and a mandatory conversion trigger if the common share price trades above 150 % of the conversion price for 30 consecutive trading days. Historically, Denison’s leverage has hovered around 1.9‑2.1 ×, well under the covenant ceiling, and cash‑flow coverage has been comfortably above 1.5 ×, suggesting a low probability of an inadvertent breach under current operating assumptions. The principal risk would arise from a sustained drop in uranium prices that compresses cash flow, or from an aggressive acquisition strategy that pushes net‑sale‑proceeds beyond the permitted level. Traders should monitor uranium price trends and Denison’s quarterly cash‑flow statements; any material deterioration could tighten the spread on the 2031 notes and create a short‑selling opportunity on the convertible bond or the underlying equity. Conversely, a stable or improving price environment supports the notes’ rating and may justify a buy‑and‑hold of the convertible at current pricing, especially given the upside conversion premium.