Moody's downgrades Mercer

Moody's Investors Service said it downgraded Mercer International Inc.'s senior unsecured debt rating to B2 from Ba3, its corporate family rating to B1 from Ba2,the probability of default rating to B1-PD from Ba2-PD, the speculative-grade liquidity rating to SGL-3 from SGL-1 and changed the outlook to negative from stable.

"The downgrade reflects our expectation that Mercer will experience weak operating and financial metrics through 2024 driven by a weak operating environment, soft market demand, lower performance and higher debt following acquisitions over the past couple of years," said Aziz Al Sammarai, a Moody's assistant vice president, in a press release.

"We expect that Mercer's operating costs in 2023 and 2024 will remain high compared with historical levels driven by higher fiber and other inflationary costs. We also project average benchmark North American pulp prices will remain weak in 2023 and 2024, amid soft demand environment," Sammarai added.

The agency said the weaker outlook reflects the expectation that Mercer's financial leverage will remain above 10x with negative free cash flow over the next 12-18 months.

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