JSE-listed paper and packaging giant Sappi has announced a €350-million senior notes offering, due 2028, by its subsidiary Sappi Papier Holding (SPH).
The offer aims to improve the company’s debt maturity profile and will be used to redeem all of SPH’s outstanding senior notes due 2023.
Sappi operates 19 production facilities, including 18 pulp and paper mills, across ten countries, as well as a trading network called Sappi Trading, and is focused on providing dissolving wood pulp, packaging and specialty papers, printing and writing papers, as well as biomaterials and biochemicals to its direct and indirect customer base.
S&P Global Ratings assigned its 'BB-' issue rating to the proposed €350-million senior unsecured notes, explaining that the proposed notes rank at the same seniority as all the company's other unsecured, unsubordinated debt, while carrying an equivalent guarantee from Sappi.
S&P maintains a stable outlook for Sappi, reflecting the agency's expectation that the company's weaker credit metrics in the 2020 financial year ended September 30, 2020, and the 2021 financial year, as a result of Covid-19, will result in adjusted funds from operations (FFO) to debt of 15% to 20% on average.
S&P Global Ratings-adjusted FFO to debt was 6.7% in the 2020 financial year and is expected to remain below 20% in the 2021 financial year.
"We expect weak demand and pricing trends to persist into the first half of the 2021 financial year, dampening sales volumes and earnings before interest, taxes, depreciation and amortisation (Ebitda) margins. In our view, capacity utilization will recover to pre-Covid-19 levels in the second half of 2021.
"That said, we expect some pandemic-related volume loss in the structurally declining coated paper market to be permanent. Sappi's reported net debt-to-Ebitda target of 2x or lower is in line with its financial policy and remains unchanged, but stressed conditions through the past financial year reversed the deleveraging trend. Debt could also rise if operating cash flow is lower than expected, given the group's existing capital expenditure commitments," the ratings agency notes.