Moody’s upgrades Mercer

Moody's Investors Service said it upgraded Mercer International Inc.'s corporate family rating to Ba3 from B1, probability of default rating to Ba3-PD from B1-PD and speculative grade liquidity rating to SGL-1 from SGL-2.

The agency also said it upgraded the rating on the company's senior unsecured notes to B1 (LGD 4) from B2 (LGD 4).

The outlook is stable.

The upgrades are driven by the company's ability to maintain leverage of less than 4x, even as pulp prices are expected to decline, Moody's explained.

The ratings reflect the company’s leading global market position in northern bleached softwood kraft (NBSK) pulp, the stability provided by material energy and chemical earnings, the diversity of three mills, volatility of pulp prices and expected mid-cycle leverage of less than 4x, the agency said.

Mercer's financial performance is significantly influenced by the volatile demand and pricing for market pulp, which is strongly impacted by demand from China and new global supply, Moody’s explained.

Operating margins have fluctuated significantly over the past several years due to the cyclical nature of the fragmented pulp industry, as well as foreign-exchange fluctuations, the agency added.

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