Mercer recent notes lift leverage to 2.2x, expected to fall in 2019

By Devika Patel

Knoxville, Tenn., Feb. 15 – Mercer International Inc. sold senior notes in the last quarter, which lifted its trailing 12-month leverage ratio to 2.2x, but management expects that to fall in 2019.

The company used the notes’ proceeds, along with operating capital and cash on the balance sheet, to fund three recent acquisitions.

“We advanced our growth objectives considerably in Q4,” president and chief executive officer David M. Gandossi said on the company’s fourth quarter and year ended Dec. 31, 2018 earnings conference call on Friday.

“We [completed] the acquisition of Peace River and Caribou Pulp in western Canada.

“And we added a new sandalwood extractor business to our suite of bioextractors,” Gandossi said.

The company acquired the Santanol Group, which owns and leases approximately 2,500 hectares of existing Indian sandalwood plantations and a processing and extraction plant in North West Australia, in late 2018.

“The acquisitions and our ambitious capital program were financed with the modest use of cash on the balance sheet and new senior notes, leaving our balance sheet a firm foundation to support further growth along with a steady dividend,” Gandossi said.

“The operating cash flow [of about $64 million] combined with net proceeds from our new senior unsecured notes issuance was used to complete the acquisitions of the Peace River and Caribou Pulp mills along with the Santanol sandalwood extraction business, totaling a combined $380 million,” senior vice president of finance and chief financial officer David K. Ure said on the call.

On a trailing 12-month basis, the company’s net leverage ratio was 2.2x, an increase due to the notes’ sale.

“We expect [the net debt leverage ratio] to come down slowly through 2019 as EBITDA from our acquisitions begins to materialize,” Ure said.

The company has been adding to its liquidity.

“During the quarter, we put a new €200 million revolving credit facility in place in Germany,” Ure said.

“In addition, in early February, we finalized a new C$60 million working capital facility for our Peace River mill,” Ure said.

In January, the company was added to the S&P Smallcap 600 index.

“We were pleased that our steady performance and improving credit metrics were noted by S&P Smallcap 600 index as we were added to the index in early January,” Ure said.

Cash and cash equivalents were $240,491,000 as of Dec. 31, 2018, compared to $143,299,000 as of Dec. 31, 2017.

On Nov. 29, Mercer priced a $350 million issue of senior notes due Jan. 15, 2025 (Ba3/BB-) at par to yield 7 3/8%.

The yield printed at the wide end of yield talk in the 7¼% area.

Credit Suisse Securities (USA) LLC was the left bookrunner. Barclays and RBC Capital Markets LLC were the joint bookrunners.

The Vancouver, B.C.-based pulp producer earmarked the proceeds to fund its acquisition of Daishowa-Marubeni International Ltd., a Canada-based forest products company.

© 2015 Prospect News.
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