News that the softwood tariff deal between Canada and the U.S. would likely not pass before the Canadian Parliament broke for summer recess last week knocked three points off Tembec's bonds. The lumber company's 8 1/2% bonds fell three points to 49. The debt of other lumber companies also dropped. Bowater and Abitibi Consolidated bonds both lost a point. Bowater's 6 1/2% '13 bonds dropped to 87, while Abitibi's 6% '13 notes fell to 81. Domtar's 5 3/8% '13 bonds lost a quarter of a point to trade at 80 1/4. Tembec's bank debt is inactive. No agreement had been reached at press time.
Canada and the U.S. came to a framework agreement in April to lift most of the export duties on softwood lumber companies exporting to the U.S., which caused Tembec's bonds to trade up eight points and the bonds of other softwood lumber companies to also gain a few points. A spokesman for Canada's Department of Foreign Affairs and International Trade said that at this time both the U.S. and Canada are still negotiating on the finer points of the legislation, adding that both sides knew it would take several months to come to an agreement. "It is only two months into the negotiations," he said.
No agreement can take effect until Parliament reconvenes Sept. 18. For the time being, a 10.2% duty rate on exports will still be imposed on Canadian lumber companies. Tembec stands to benefit the most from a lift in duties because it exports a large portion of its lumber to the U.S. (CIN, 4/28).