Georgia-Pacific says committed to reducing bank, bond debt to gain investment-grade rating

By Sara Rosenberg

New York, Dec. 4 - Georgia-Pacific Corp. is focused on reducing debt in order to obtain investment-grade status. And, to that end, the company is looking to the capital markets for long-term financing that could be used to pay down bank debt and retire higher yielding bonds, said A.D. Correll, Georgia-Pacific's chairman and chief executive officer.

"The capital markets are still quite attractive to us and we may well do some more long-term financing, because we've still got more exposure to the banks than I wish we had, and secondly we've got some long-term debt out there that's just crying to be called," Correll said during the Smith Barney Citigroup Global Paper, Forest Products and Packaging Conference.

At the beginning of the year, the company's bonds were selling for about $0.85, according to Correll. But, now the bonds "have traded back into parity with other companies debt securities so we feel very good about that," Correll said. "We feel especially good about the access to the capital markets that this has given us."

And, in fact, not long after the conference took place, the company priced $500 million of 8% senior notes due 2024 on Thursday in a drive-by deal with proceeds being earmarked for paying down revolver debt and general corporate purposes.

Proceeds from the divesting of non-strategic businesses will be used to reduce debt as well.

"We'll get our bank loan down to where we want it and then we'll call some of this longer, higher coupon debt that's callable," Correll said. "We need to reduce our debt and that will be the way we do it.

"I know our debt needs to be below $8 billion for us to make a credible presentation that we need to be solid BBB. Now our ratios are already better than many of our competitors who are rated two or three levels higher than we are. But, we've got a hole to dig ourselves out of and we're in the process of digging."

At Sept. 27, debt was $11.103 billion, equity was $4.841 billion and adjusted EBITDA was $656 million. The leverage ratio was 64.1%, compared to the required level of 67.5%, the interest coverage ratio was 2.43, compared to the required level of 2.25 and the net worth was $6.117 billion, compared to the required level of $5.593 billion.

"We've totally restructured our debt. We had two big bubbles staring at us - the capital bridge loan in 2003 and then the bank revolver. We had quite a large exposure to the banks in 2005. We clearly have spread our maturities out so that we have no big bubbles facing us. We have no liquidity issues," Correll continued.

"We've driven our debt down quite substantially. We started at $15½ billion worth of debt. At the end of the third quarter we were at $11.1 (billion). So that's over $4 billion. We've said publicly we expected to end this year slightly below $11 billion. Originally, we had targeted $9½ billion. I think we'll reach that relatively soon, but that's not the right target anymore. Clearly our emphasis is on restoring this company back to an investment-grade credit."

Overall, the company's strategic execution goals outlined during the call included not only debt reduction and divesting non-strategic businesses but generating free cash flow, controlling capital spending, reducing overhead expenses, addressing liquidity concerns, managing asbestos position and conveying progress to shareholders as well.

"We've got to continue to drive our margins up. But, the name of the game for us is clearly drive the debt down, drive the cost down and do a better job of communicating with our shareholders and our bondholders," Correll said.

Georgia-Pacific is an Atlanta manufacturer of tissue, packaging, paper, building products, pulp and related chemicals.

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