A group of high-yield paper and forest products companies are expected to tap the market to refinance close to $2 billion in high-yield bonds over the next year, according to sell-side analysts. Some of the issuance may also be the result of M&A activity, with rumors that certain Enron-owned facilities may be bought by companies in the sector, says Joe Stivaletti, analyst at Goldman Sachs.
Canada's Norampac is already putting out feelers. Charles Smith, cfo at the Quebec-based containerboard-maker, says it will look to bring $250 million in U.S. dollar-denominated bonds to take out the $100 million Canadian dollar-denominated 9.375% notes of '08 and the $150 million U.S. 9.5% notes of '08. The company also wants to refinance a $250 million bank credit facility maturing in December as part of the package, and will issue RFPs to a combination of three U.S. and three Canadian banks to underwrite the combined bank and bond deals early this week. He declines to name the banks in the running. Banks have told the company they can price a bond deal at 6.75-7.25%, Smith says.
Other companies seen as potential issuers include Packaging Corp. of America, which has $550 million in bonds callable in the next 13 months, and Box USA (formerly Four M). Goldman's Stivaletti says Box USA could clearly bring a deal at a coupon well below its outstanding $170 million 12% notes of '06. Similar improvements are possible for Norampac and PCA, he says, which have a shot at moving to investment-grade fairly soon. Calls to Box USA officials and Richard West, cfo at PCA, were not returned.
Bruce Klein, analyst at Credit Suisse First Boston, mentions Riverwood Holding as another potential issuer, which has $900 million in higher coupon callable bonds. Riverwood has tried to price an IPO and may still be, but would likely find buyers for a debt offering if the equity market remains shut to the company, Klein says. He also argues that Owens-Illinois is a perennial candidate to issue paper when the pricing is attractive. A call to James Baehren, director of finance at Owens-Illinois was not returned.
Most of the companies have an opportunity to increase their interest coverage significantly, and because they will for the most part be replacing old debt, secondary trading levels are not likely to be negatively impacted, says Goldman's Stivaletti.