AbitibiBowater files for bankruptcy protection

[Hoodlum]

The results for SFK were not good.  Net loss of $15M and cash dropped down to $23M in traditionally their best quarter.  The covenants will be breached this year at some point even without the Abitibi situation.

 

http://www.sfkpulp.com/EN/docs/CPDistr/2009/20090515-SFKPress%20Release2009Q1-EN.pdf

 

"As at March 31, 2009, SFK Pulp was in full compliance with its debt covenants. However, the ongoing negative market conditions have resulted in lower EBITDA than anticipated. Based on current forecasts, SFK Pulp expects to be unable to meet the interest coverage ratio prescribed in its credit facility before the end of 2009. In addition, in the case of an unfavorable judgment in the litigation opposing SFK Pulp to Abitibi, SFK Pulp will no longer benefit from the price formula for its fibre purchases from Abitibi, which currently provides a $20/tonne price reduction from market price.  Moreover, it will need to assess the impact of this termination under the terms of its credit agreement.  Under these circumstances, the ability of SFK Pulp to continue its operations will be dependent on the support of its lenders or its ability to secure alternative financing."

 

[oldye]

Cash reserves dropped to 23m not cash.  If cash were up to 23 million dollars I'd be relatively relieved!  The Canadian government has been planning some type of package, most likely in the form of loan guarantees and if we're lucky a match on the black liquor tax. 

 

At 20$ a ton discount to market, assuming about 300k tones a year would be worth roughly 6 million a year till 2022, 78 million dollars!   A settlement for the NPV of the contract would bring temporary relief, perhaps enough to carry them through this crisis.

[SharperDingaan]

 

Their cash position is testimony to how well run this company is.

 

Coy wise its would seem almost a given that the deb will now be converted in some fashion. There will be some kind of equity dilution/consolidation, and some kind of new fibre agreement. Given the times; the pricing will be dirt cheap, & the long term stability extraordinary - but in the short term ... volatility. 

 

Most SFK shareholders will have been fully hedged for some time, & the Q1 result was not unexpected. If you're going to be invested in pulp; SFK remains a top pick, & hedge cash is sitting on the sideline. If you hold a long term view, the 'back-of-the-envelope' suggests extraordinary opportunity.

 

Cdn practice is industry/governmental co-operation for the greater good. Quebecs involvement is very lkely along the lines of transferring ABH's cutting rights to SFK, & giving up the first few years of stumpage fees in return for the $78M ABH loss & keeping the local population working.

 

SD