Domtar to continue reducing debt, trimmed $400 million of debt in 2009

By Jennifer Lanning Drey

Portland, Ore., Feb. 4 - Domtar Corp. will continue to use its free cash flow to pay down debt in 2010, after reducing debt by more than $400 million in 2009, company chief executive officer John Williams said Thursday during its fourth-quarter and year-end earnings conference call.

"We still see potentially choppy waters ahead, and I never want to go through what we went through last year," Williams said, speaking during the question-and-answer portion of the call.

Domtar ended 2009 with a debt-to-capitalization ratio of 35% at Dec. 31, compared to a ratio of 50% at the end of 2008.

The focus of its debt reduction in the short term will be its term B loan, Daniel Buron, chief financial officer of Domtar, said during the call.

Domtar has targeted achieving a debt level of between $1.0 and $1.2 billion, Buron said.

"This is our current view of what would be long-term reasonable leverage," he said.

Domtar had long-term debt of $1.7 billion at Dec. 31, according to its earnings release.

In 2009, the company generated $792 million of cash from operations, which included $185 million of cash from operations generated in the fourth quarter.

As of Dec. 31, Domtar had completed asset sales for proceeds of approximately $20 million. The company has additional agreements to sell other non-core assets expected to generate about $40 million by mid-year, Buron said.

"As we continue to strengthen our financial position, we will carefully consider additional non-core asset sales," he said.

Earnings, sales down

Domtar posted fourth-quarter net earnings of $124 million on sales of $1.4 billion. The figures compared to net earnings of $183 million on sales of $1.5 billion in the year-ago period.

During Thursday's call, Williams said the company has recently seen increased stability and demand, making near-term conditions appear more favorable.

"While we believe that the worst is behind us, we'll continue to execute and take the necessary actions while we position the company for further earnings improvement," he said.

Domtar is a paper company based in Montreal.

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