Analysts Say Paper Co.'s Debt Could Turn To Pulp

  • 05 Aug 2001
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High-yield paper and forest products sell-side analysts are questioning whether investors went far enough in responding to Doman Industries' (Caa1/B) poor earnings report late last month. One says that though falling pulp prices have hurt earnings at a number of companies, Doman took an even greater hit than many had expected. Doman also failed to capitalize on a strong second quarter for lumber prices. Overall, it saw operating cash flow, as measured by EBITDA, fall by 19.2%, while at Tembec (Ba1/BB+) EBITDA fell by only 8.7%. The analyst expects increased corporate layoffs to slow the number of new homes being built, which will send the price of lumber below the average second quarter price of $503 a ton; that will probably cause a revenue shortfall that would send Doman paper below its current levels. The Vancouver, Canada-based Doman saw its 8.75% notes of' 04 fall from $64 before the earnings call to $59 last week. The analyst says they could go to the low $50's later this year.

Mike Plancey, an analyst at Merrill Lynch, says that though Doman's bonds were trading at fair value last week, he is recommending investors stay away from the paper as a turnaround hinges on a number of unknown variables, only one of which is the price of lumber. There is uncertainty regarding planned asset sales to the government of British Columbia. There is also an element of political risk involved, given the uncertain status of a U.S.-Canadian trade agreement limiting Canadian lumber exports to the U.S. The treaty expired in March, and a renewal is being delayed as U.S. lumber companies charge their Canadian counterparts with dramatically increasing exports in its absence. U.S. producers have asked the Commerce Department to impose a tariff on Canadian imports.

  • 05 Aug 2001

All International Bonds

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1 Citi 253,106.92 930 8.89%
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4 Goldman Sachs 171,499.26 554 6.03%
5 Barclays 169,046.60 646 5.94%

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4 BNP Paribas 19,315.94 110 5.34%
5 Credit Agricole CIB 18,706.93 106 5.17%

Bookrunners of all EMEA ECM Issuance

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1 JPMorgan 12,578.87 55 8.17%
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3 UBS 10,682.06 44 6.93%
4 Goldman Sachs 10,419.53 53 6.76%
5 Morgan Stanley 10,194.88 57 6.62%