Moody's downgrades Domtar

Moody's Investors Service said it downgraded Domtar Corp.'s senior secured bank credit facility to Ba3 from Ba2, the rating on the senior secured notes to Ba3 from Ba2 and the rating on the senior unsecured notes to B2 from Ba3. The agency lowered the corporate family rating to Ba3 from Ba2 and the probability of default rating to Ba3-PD from Ba2-PD.

The agency noted the downgrade follows weaker-than-expected credit metrics amid weak volumes and pricing and unplanned downtime in the company's primary markets: paper, pulp and wood products.

“We expect leverage to peak at 5.7x in 2023 before declining to 4.3x in 2024. The rating also reflects an aggressive financial policy with three acquisitions following the initial purchase of Domtar by Paper Excellence and expectations of further acquisitions. This could result in higher debt and additional integration risk. This is a change from the initially communicated strategy that Paper Excellence will run its operations separately.

“The change reflects Paper Excellence's expectations that folding its Canadian mills into Domtar will allow Domtar to use net operating losses (NOLS) and other tax benefits. The rating profile also reflects declining quality in financial transparency, as the company adds new assets, restates financials and integrates reporting segments,” Moody’s said in a press release.

The outlook is stable.

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