Fretting Weyerhauser, But Differing On Alternative

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Fretting Weyerhauser, But Differing On Alternative

A sell-side analyst and an investor have concerns about the high leverage and asbestos-related woes of Washington State-based Weyerhauser Co., a diversified forest products manufacturer, but disagree on how to add exposure in the sector.

Advantus Capital Management swapped out of the Weyerhauser 7.375% notes of '32 to purchase $4 million of last Monday's $300 million offering of 6.8% notes of '32 (Baa2/BBB) from MeadWestvaco Corp. Wayne Schmidt, portfolio manager at Advantus, says he wants to spread his risk in the sector, as he is concerned about Weyerhauser's high debt levels resulting from its acquisition of another Pacific Northwest-based forest products company, Willamette. Advantus sold the Weyerhauser paper at 195 basis points over Treasuries, while the MeadWestvaco offering priced at 198 basis points over the 30-year.

Mark Altherr, analyst at Credit Suisse First Boston, says the trade makes sense, though both credits are exposed to asbestos-related litigation. "There's asbestos at Weyerhauser but more at Mead, and from a balance sheet perspective you're in better shape at MeadWestvaco," he says. However, among the diversified forest products companies Altherr sees International Paper as a far better credit than either MeadWestvaco or Weyerhauser. "There's a disconnect between the three companies. All are Baa2/BBB, but I-paper has reduced massive debt over the past year and is doing relatively well in a poor environment over everyone else." International Paper's 6.875% notes of '29 were more expensive last Tuesday, at 170 basis points over the curve, but Altherr says the credit is worth the higher price.

 

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