- (The following statement was released by the rating agency)
Sept 29 - Moody's Investors Service noted today's announcement made by M-real (rated B3 with a negative outlook) to take a new major step in its strategic review initiated in 2006 by divesting its graphic paper division. According to the announcement, M-real reached an agreement with Sappi Ltd. (rated Ba2 with a stable outlook) to sell graphic paper assets for a consideration of EUR 500 million in cash and assumed debt, a EUR 200 million Loan Note from Sappi and a EUR 50 million shareholding in Sappi. M-real's strategic review regarding its paper businesses, however, continues.
The transaction is expected to close latest during Q1 2009 after receiving clearance from several authorities and shareholders of Sappi.
Irrespective of the closing of the proposed transactions, M-real has impaired assets in the scope of this transaction in the amount of EUR 210 million. The impairment reduces covenant headroom before closing of the transaction under its EUR 500 million revolving credit facility maturing December 2009 (pro-forma net gearing 96%, equity ratio 41%). Proceeds from the disposal are earmarked for debt repayment, but funds will not flow until closing which is expected latest during first quarter of 2009. On a pro-forma basis this reduces the gearing to 64% (120% covenant maximum) and raises the equity ratio to 47% (30% minimum).
Though this transaction may bring some immediate benefits to the liquidity profile of M-Real, which has been a concern of the agency, Moody's notes that there is a degree of uncertainty whether the main transaction with Sappi concludes as presented due to various funding risks (Moody's understands that the equity portion has reportedly been fully underwritten). In addition approvals need to be obtained, among those Sappi EGM consent and EU competition clearance. Moody's also notes that some time will be required to establish the resiliency of the new business set-up of the company.
In the forthcoming months, Moody's will assess (i) the likelihood and progress of the transaction being financed and approved by relevant competition authorities, (ii) M-real's new strategy and business plan for the downsized group as well as (iii) the assessment of the evolving capital structure subsequent to the receipt of the disposal proceeds against the macroeconomic and industry environment.
Although Moody's believes that M-real's intention to sell its underperforming graphic paper assets sheds an important cash-draining division, the agency awaits the establishment of a solid track record that proves the group's new set-up with a focus on two operating divisions (consumer packaging and office paper) as well as the strategic shareholding in two key investments (Metsa Botnia and PVO) to be viable. Upward pressure on the rating Moody's would only develop over time following the successful closing of the transaction and the assessment of such a track record. Any future positive movement of the rating would likely be first a stabilization of the outlook.
However, should the transaction fail to materialise given several conditions precedent to be met, Moody's will assess the default probability of M-real with the current set-up, i.e. including the graphic paper division, while at the same time analysing potential recovery scenarios. This assessment could well result in a rating downgrade.
The last rating action for M-real has been on October 26, 2007, when Moody's affirmed M-real's B3 rating and changed the outlook to negative from stable.
M-real, headquartered in Espoo, Finland, is among Europe's largest integrated paper and forest products companies with sales of EUR 4.4 billion and an operating loss of EUR120 million for full year 2007. Core activities include consumer packaging, graphic papers, and office papers. At end-June 2008, M-real employed a staff of more than 9,000.
(New York Ratings Team) tf.TFN-Europe_newsdesk@thomsonreuters.com ms1 COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
Sept 29 - Moody's Investors Service noted today's announcement made by M-real (rated B3 with a negative outlook) to take a new major step in its strategic review initiated in 2006 by divesting its graphic paper division. According to the announcement, M-real reached an agreement with Sappi Ltd. (rated Ba2 with a stable outlook) to sell graphic paper assets for a consideration of EUR 500 million in cash and assumed debt, a EUR 200 million Loan Note from Sappi and a EUR 50 million shareholding in Sappi. M-real's strategic review regarding its paper businesses, however, continues.
The transaction is expected to close latest during Q1 2009 after receiving clearance from several authorities and shareholders of Sappi.
Irrespective of the closing of the proposed transactions, M-real has impaired assets in the scope of this transaction in the amount of EUR 210 million. The impairment reduces covenant headroom before closing of the transaction under its EUR 500 million revolving credit facility maturing December 2009 (pro-forma net gearing 96%, equity ratio 41%). Proceeds from the disposal are earmarked for debt repayment, but funds will not flow until closing which is expected latest during first quarter of 2009. On a pro-forma basis this reduces the gearing to 64% (120% covenant maximum) and raises the equity ratio to 47% (30% minimum).
Though this transaction may bring some immediate benefits to the liquidity profile of M-Real, which has been a concern of the agency, Moody's notes that there is a degree of uncertainty whether the main transaction with Sappi concludes as presented due to various funding risks (Moody's understands that the equity portion has reportedly been fully underwritten). In addition approvals need to be obtained, among those Sappi EGM consent and EU competition clearance. Moody's also notes that some time will be required to establish the resiliency of the new business set-up of the company.
In the forthcoming months, Moody's will assess (i) the likelihood and progress of the transaction being financed and approved by relevant competition authorities, (ii) M-real's new strategy and business plan for the downsized group as well as (iii) the assessment of the evolving capital structure subsequent to the receipt of the disposal proceeds against the macroeconomic and industry environment.
Although Moody's believes that M-real's intention to sell its underperforming graphic paper assets sheds an important cash-draining division, the agency awaits the establishment of a solid track record that proves the group's new set-up with a focus on two operating divisions (consumer packaging and office paper) as well as the strategic shareholding in two key investments (Metsa Botnia and PVO) to be viable. Upward pressure on the rating Moody's would only develop over time following the successful closing of the transaction and the assessment of such a track record. Any future positive movement of the rating would likely be first a stabilization of the outlook.
However, should the transaction fail to materialise given several conditions precedent to be met, Moody's will assess the default probability of M-real with the current set-up, i.e. including the graphic paper division, while at the same time analysing potential recovery scenarios. This assessment could well result in a rating downgrade.
The last rating action for M-real has been on October 26, 2007, when Moody's affirmed M-real's B3 rating and changed the outlook to negative from stable.
M-real, headquartered in Espoo, Finland, is among Europe's largest integrated paper and forest products companies with sales of EUR 4.4 billion and an operating loss of EUR120 million for full year 2007. Core activities include consumer packaging, graphic papers, and office papers. At end-June 2008, M-real employed a staff of more than 9,000.
(New York Ratings Team) tf.TFN-Europe_newsdesk@thomsonreuters.com ms1 COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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