Moody's rates Millar Western notes B3

Moody's Investors Service assigned a B3 rating to Millar Western Forest Product's proposed US$175 million issue of senior unsecured notes. The outlook is positive.

Proceeds from the offering will be used primarily to refinance the company's outstanding $160 million note issue.

The rating reflects the company's limited diversity, exposure to volatile pulp prices, high level of debt leverage, and the weak profitability of its lumber operations. The ratings are supported by its significant market presence in bleached chemi-thermo-mechanical pulp (BCTMP), the comparatively low cost position of its pulp and lumber operations, and acceptable financial liquidity.

For the nine months ended Sept. 30, net sales for the company were about C$195 million and operating income was C$23 million. The improvement in operating results, combined with the currency translation effect on its debt, allowed Millar's ratio of debt/EBITDA to fall from 5.8 times in 2002, to about 4.8 times (through Sept. 30, 2003).

Financial liquidity consists of C$46.4 million in cash at Sept. 30. In conjunction with the proposed note offering, the company will renew its C$50 million 364-day bank credit facility. The facility's new maturity will be Nov. 30, 2004, however, a renewal option at Millar's discretion can extend the facility an additional 364-days.

The amount available under the facility is C$47.4 million, of which C$4.5 million is committed to letters of credit. The facility is secured by inventory and receivables and is subject to a borrowing base. Although, the facility provides some structural subordination to the senior unsecured notes, the size of the facility is small relative to outstanding debt (C$216 million) and total assets (C$318 million), and anticipated minimal usage, allows the senior notes to be rated at the senior implied level of B3.

Millar is currently in compliance with its bank covenants (there are no bond maintenance covenants).

Moody's said the outlook for Millar's ratings is positive. Higher ratings could result from a sustained period of higher pulp prices, favorable resolution of the U.S./Canada softwood lumber dispute, and the maintenance of conservative financial policies. Adverse ratings actions could occur if pulp prices weaken, the company increases leverage to support acquisitions or new facilities, and financial liquidity deteriorates.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.