When it comes to setting prices, North American paper companies have exhibited some strange behavior lately that is helping customers but making life even more uncomfortable for their most cash-strapped competitors.
Manufacturers' failure to follow through on July 1 price increases announced for newsprint and coated paper is making it harder for White Birch to exit bankruptcy protection and is pushing NewPage closer to the brink of insolvency. As noted two weeks ago in An Ominous Week for NewPage, investors have been in a dither lately over whether NewPage would be able to make a $100 million coupon payment that is due today on one of its bond issues. (It made the payment.)
The usual pattern in publication paper markets is that when one large manufacturer announces a price increase, the other mills in the same market quickly follow suit with similar increases. But that didn't happen this time around for either coated paper or newsprint.
On May 18, NewPage announced July 1 price increases of $60 per ton for everything from supercalendered paper to coated freesheet (CFS). The move by the continent's #1 maker of magazine-grade papers seemed a bit aggressive but not completely out of line considering recent capacity shutdowns and rising costs for fiber, pulp, and energy.
But Verso, #2 in the market, took some wind out of NewPage's sails a week later by announcing increases of only $30 on those types of products. NewPage had to dial back its price increases when most other manufacturers went along with Verso's pricing.
Other manufacturers except SAPPI, that is. That company, a major producer of CFS, never issued a July price announcement. As a result, even the $30 increase that most buyers had resigned themselves to was rolled back.
A similar scenario played out for newsprint. White Birch, Kruger, and Catalyst all announced a $35-per-ton increase for July, but that fell apart when giant AbitbiBowater didn’t follow suit. White Birch subsequently announced some market-related downtime at its Canadian mills, an indication that they are barely meeting their cash costs at current prices.
“If AbitibiBowater had decided to support the July price increase announcement, and had been willing to remove some supply (as needed), newsprint prices would have moved higher,” industry analyst Verle Sutton wrote in the most recent issue of his The Reel Time Report newsletter (available only by subscription). But with its low debt load, efficient mills, and greater access to relatively cheap Southern U.S. fiber, Abitibi didn’t need the price increase to go through to meet its current bills.
"What AbitibiBowater really needs is to drive out the least-efficient White Birch and Kruger newsprint capacity,” Sutton wrote.
Similarly, SAPPI is better able to forego a price increase than the heavily leveraged NewPage, which has more daunting bills due later this year than today's coupon payment.
And Verso’s majority owner, Apollo Management, has an extra incentive to kick the legs out from under NewPage: It has snatched up much of NewPage’s debt in a way that would give it significant leverage over the company if (many people say “when”, not “if”) NewPage defaults.
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Showing posts with label White Birch Paper. Show all posts
Showing posts with label White Birch Paper. Show all posts
Thursday, June 30, 2011
Friday, June 17, 2011
An Ominous Week for NewPage
If you like gambling, forget blackjack, horses, or the lottery. The debt of NewPage Corp. is the hot item these days at that grand casino known as Wall Street, as speculators wager on whether the big paper manufacturer will be able to make its bond payments and stay out of bankruptcy court.
On several days recently, the company’s bonds have been the most heavily traded debt instruments in the U.S.
The betting turned sour this week as the company’s bond prices hit their lowest level in more than two years “on concern that the junk-rated coated-paper maker owned by Cerberus Capital Management LP will be unable to make an upcoming coupon payment and will restructure its debt,” according to Bloomberg. NewPage’s second-lien notes were trading at only 29 cents on the dollar Wednesday, down from 40 cents only four weeks ago.
Perhaps the drop occurred because word spread that the company is backing down on its announced $30-per-ton July price increase for coated freesheet paper. Or perhaps investors saw bad omens in last week’s announcement of a new CFO at North America’s largest coated manufacturer.
It’s not that Jay A. Epstein isn’t qualified for the job. But there are two troubling entries on his resume, Enron and White Birch Paper. White Birch and its affiliated companies in the newsprint business entered bankruptcy protection 16 months ago and don’t show much sign of getting out.
To be fair, Epstein apparently didn’t have anything to do with the famed collapse of Enron. He worked in what contacts tell me was an innovative and legitimate business – trying to create a futures market based on pulp and paper prices – that failed because the parent company went down the drain before many people in the tradition-bound paper-making and paper-buying industries had grasped the benefits of hedging.
And the White Birch/Brant empire seemed to be an accident waiting to happen. It is saddled with high-cost mills, rapidly declining demand, and an owner who’s been distracted by a messy and very public divorce from ex-supermodel Stephanie Seymour. (See White Birch: Weaker Than I Realized.)
If not for its crushing debt load, NewPage might actually look like a viable business – certainly more viable than Enron in its last days or White Birch today. The North American coated paper industry has been unusually disciplined lately in managing capacity, which has helped drive up prices in the face of tepid demand.
The weak dollar makes NewPage’s main market, the U.S., relatively unattractive for offshore suppliers. The company’s massive downsizing has apparently left it with relatively low manufacturing costs. And efforts to restart competing supercalendered paper mills in Ontario and Maine keep sputtering out.
Here’s some advice for speculators who are trying to handicap NewPage and project its cash flows: Follow the pulp. Market prices for kraft pulp are at record highs. Rarely has it been more profitable for U.S. mills to sell their pulp rather than turning it in to freesheet paper. And rarely has it been less profitable for them to make paper with purchased pulp.
So the questions to ask are:
For more information on NewPage’s travails, see:
On several days recently, the company’s bonds have been the most heavily traded debt instruments in the U.S.
The betting turned sour this week as the company’s bond prices hit their lowest level in more than two years “on concern that the junk-rated coated-paper maker owned by Cerberus Capital Management LP will be unable to make an upcoming coupon payment and will restructure its debt,” according to Bloomberg. NewPage’s second-lien notes were trading at only 29 cents on the dollar Wednesday, down from 40 cents only four weeks ago.
Perhaps the drop occurred because word spread that the company is backing down on its announced $30-per-ton July price increase for coated freesheet paper. Or perhaps investors saw bad omens in last week’s announcement of a new CFO at North America’s largest coated manufacturer.
It’s not that Jay A. Epstein isn’t qualified for the job. But there are two troubling entries on his resume, Enron and White Birch Paper. White Birch and its affiliated companies in the newsprint business entered bankruptcy protection 16 months ago and don’t show much sign of getting out.
To be fair, Epstein apparently didn’t have anything to do with the famed collapse of Enron. He worked in what contacts tell me was an innovative and legitimate business – trying to create a futures market based on pulp and paper prices – that failed because the parent company went down the drain before many people in the tradition-bound paper-making and paper-buying industries had grasped the benefits of hedging.
And the White Birch/Brant empire seemed to be an accident waiting to happen. It is saddled with high-cost mills, rapidly declining demand, and an owner who’s been distracted by a messy and very public divorce from ex-supermodel Stephanie Seymour. (See White Birch: Weaker Than I Realized.)
If not for its crushing debt load, NewPage might actually look like a viable business – certainly more viable than Enron in its last days or White Birch today. The North American coated paper industry has been unusually disciplined lately in managing capacity, which has helped drive up prices in the face of tepid demand.
The weak dollar makes NewPage’s main market, the U.S., relatively unattractive for offshore suppliers. The company’s massive downsizing has apparently left it with relatively low manufacturing costs. And efforts to restart competing supercalendered paper mills in Ontario and Maine keep sputtering out.
Here’s some advice for speculators who are trying to handicap NewPage and project its cash flows: Follow the pulp. Market prices for kraft pulp are at record highs. Rarely has it been more profitable for U.S. mills to sell their pulp rather than turning it in to freesheet paper. And rarely has it been less profitable for them to make paper with purchased pulp.
So the questions to ask are:
- Is NewPage “pulp long” or “pulp short”? The company’s 2010 annual report says it supplied 94% of its pulp requirements but also sold some excess hardwood pulp last year. But recent mill shutdowns may have shifted the pulp-paper balance significantly.
- How well suited are NewPage’s pulp operations to the sale of market pulp, especially for export? Just because you can make pulp on site for your own paper machines doesn’t mean you have a way to prepare and transport it to customers half way around the world. NewPage’s concentration of mills in the U.S. Midwest may be a disadvantage here.
- What about Verso? NewPage would benefit if its largest competitor can divert a fair amount of its pulp to export markets. That would make Verso inclined to idle paper machines and sell the excess pulp rather than driving paper prices down by making excess rolls.
For more information on NewPage’s travails, see:
Wednesday, February 24, 2010
White Birch: Weaker Than I Realized
White Birch, North America's second largest newsprint manufacturer, filed for bankruptcy protection in both Canada and the United States today.
"If White Birch survived 2009's record decreases in U.S. newsprint prices, why would it go under now that things are looking up?" I wrote a month ago. The answer is apparently that White Birch took on so much water in 2009 that the recent recovery of newsprint prices was too little and too late to keep the ship afloat.
The privately held company said today it would continue operating while it seeks court approval for $140 million in debtor-in-possession financing from some of its lenders. That should provide it "more than adequate liquidity during the restructuring," which is "about fixing our capital structure," the company's news release said.
The Chapter 11 filing will fuel more gossipy articles about White Birch owner Peter Brant's messy and very public divorce from ex-supermodel Stephanie Seymour. New York magazine, for example, reported today that some of Brant's neighbors speculate that "the impish playboy polo player" is using the White Birch reorganization as "a ruse to hide divorce assets."
The 41-year-old Ms. Seymour, however, has not been hiding her assets. She recently showed just about all of them in a racy Vanity Fair spread. And how does she look after years of retirement and marital non-bliss? Let's just say she has better prospects for making money from modeling, whether avec or sans clothing, than her soon-to-be-ex does from making newsprint.
Monday, January 25, 2010
White Birch: Is It a Soap Opera or a Newsprint Company?
"I'm not necessarily a Peter Brant admirer, who after all did steal my wife. But he doesn't deserve this hypocritical hatchet job."
Rarely does a paper mogul's personal and business life become the subject of a gossipy, in-depth piece in The New York Times, as happened yesterday with Peter Brant, owner of White Birch Paper. But, then, rarely does a paper mogul hang out with the likes of Andy Warhol and Donald Trump and go through a messy and well-publicized divorce from a former Victoria's Secret model.
"The tone of the article is 'What an idiot this rich guy is,'" summarizes Manham, an investment advisor and regular contributor to Seeking Alpha. He concludes the column with that priceless steal-my-wife line quoted above.
"It's a little ironic to read an article about a rich scion of wealth who spends too much money and sees his wealth evaporate -- in a newspaper owned by a company owned by . . . well let's just say that people in glass headquarters should not throw stones," he says.
Besides its muckraking dive into the lifestyles and divorces of the rich and famous, the Times article reports on rumors that privately held White Birch, North America's #2 newsprint producer, is on the verge of bankruptcy.
"White Birch’s own prospects are difficult to divine; as a private company, the particulars are known only to the principals and a handful of debt holders," writes The Times' David Segal. But then he cites a report that White Birch missed an interest payment a few months ago and is renegotiating its debt.
Segal doesn't mention that U.S. newsprint prices have risen more than 20% in the past month and seem to be headed higher. Or that the weak dollar and Chinese fiber shortages are putting U.S. mills in the position of being low-cost suppliers to some growing export markets. Those trends beg a question: If White Birch survived 2009's record decreases in U.S. newsprint prices, why would it go under now that things are looking up? (Update: A more knowledgeable analyst, Verle Sutton of Reel Time Report, has responded to my article by writing that some kind of financial reorganization for White Birch seems almost inevitable.)
Manham criticizes Segal for presenting White Birch's acquisitions as "some kind of ego-fueled all-in bet" on the newsprint industry. Manham says instead that such consolidation "was the least-bad way to effect the capacity reductions that the industry needed and to improve per-unit competitiveness against new foreign competition."
"The strategy kind of worked," he writes, because North American newsprint prices have held up fairly well given huge declines in demand.
-- Nadav Manham
This is a story about an ex-supermodel, a messy and well-publicized divorce, a possible goof by The New York Times, and a major newsprint company that may -- or may not -- be on the verge of bankruptcy.
"The tone of the article is 'What an idiot this rich guy is,'" summarizes Manham, an investment advisor and regular contributor to Seeking Alpha. He concludes the column with that priceless steal-my-wife line quoted above.
"It's a little ironic to read an article about a rich scion of wealth who spends too much money and sees his wealth evaporate -- in a newspaper owned by a company owned by . . . well let's just say that people in glass headquarters should not throw stones," he says.
Besides its muckraking dive into the lifestyles and divorces of the rich and famous, the Times article reports on rumors that privately held White Birch, North America's #2 newsprint producer, is on the verge of bankruptcy.
"White Birch’s own prospects are difficult to divine; as a private company, the particulars are known only to the principals and a handful of debt holders," writes The Times' David Segal. But then he cites a report that White Birch missed an interest payment a few months ago and is renegotiating its debt.
Segal doesn't mention that U.S. newsprint prices have risen more than 20% in the past month and seem to be headed higher. Or that the weak dollar and Chinese fiber shortages are putting U.S. mills in the position of being low-cost suppliers to some growing export markets. Those trends beg a question: If White Birch survived 2009's record decreases in U.S. newsprint prices, why would it go under now that things are looking up? (Update: A more knowledgeable analyst, Verle Sutton of Reel Time Report, has responded to my article by writing that some kind of financial reorganization for White Birch seems almost inevitable.)
Manham criticizes Segal for presenting White Birch's acquisitions as "some kind of ego-fueled all-in bet" on the newsprint industry. Manham says instead that such consolidation "was the least-bad way to effect the capacity reductions that the industry needed and to improve per-unit competitiveness against new foreign competition."
"The strategy kind of worked," he writes, because North American newsprint prices have held up fairly well given huge declines in demand.
Monday, December 8, 2008
Another Chapter 11 Filing Dings AbitibiBowater
Today’s Chapter 11 filing by Tribune Company could put a multimillion-dollar hurt on AbitibiBowater, another newsprint manufacturer, and perhaps some fellow newspaper publishers.
Tribune filed papers with a Delaware bankruptcy court indicating it owed nearly $7 million in “trade debt” to Abitibi -- $4.192 million to the Abitibi Consolidated subsidiary and $2.77 million to the Bowater subsidiary.
Also making Tribune’s list of top-30 creditors was “SP Newsprint Company c/o White Birch Paper Company” of Greenwich, CT, with $5.153 million in trade debt. SP is an Atlanta-based partnership owned by three newspaper chains (Cox, McClatchy, and Media General), while White Birch is a separate, privately owned newsprint manufacturer based in Greenwich.
White Birch was presumably a marketing agent or broker of SP paper sold to Tribune, but it's not clear which company is left holding the bag.
AbibitiBowater also has $13.3 million tied up in Quebecor World’s Chapter 11 filing from January. Put together the Quebecor and Tribune debts and you would have enough to buy 81% of AbitibiBowater stock, which closed down 10% today (and 98% from a year ago) at 43 cents per share. The heavily leveraged paper company lists assets of nearly $10 billion but has a market cap of only $25 million.
Quebecor World says it is in the process of exiting Chapter 11, but it’s not clear what kind of compensation its creditors would receive. Tribune’s various newspapers and other media properties are still operating, but the prospects are bleak for major newspaper chains with lots of debt – and for the paper companies that supply them.
Not making the Top 30 list was Catalyst Paper, the dominant newsprint supplier in the West and reportedly a major supplier to Tribune’s Los Angeles Times and other newspapers. That indicates Catalyst's exposure is less than the $1.691 million that the #30 creditor had.
The top of the list is dominated by holders of various debt instruments. The largest trade debt, $23.691 million, is owed to Warner Bros. Television, #13 on the list. Just below that Time Warner subsidiary is Mark Willes, CEO of Times Mirror until Tribune purchased it, with $11.229 million in “retirement and deferred comp”. Three other retired executives also made the list.
Tribune filed papers with a Delaware bankruptcy court indicating it owed nearly $7 million in “trade debt” to Abitibi -- $4.192 million to the Abitibi Consolidated subsidiary and $2.77 million to the Bowater subsidiary.
Also making Tribune’s list of top-30 creditors was “SP Newsprint Company c/o White Birch Paper Company” of Greenwich, CT, with $5.153 million in trade debt. SP is an Atlanta-based partnership owned by three newspaper chains (Cox, McClatchy, and Media General), while White Birch is a separate, privately owned newsprint manufacturer based in Greenwich.
White Birch was presumably a marketing agent or broker of SP paper sold to Tribune, but it's not clear which company is left holding the bag.
AbibitiBowater also has $13.3 million tied up in Quebecor World’s Chapter 11 filing from January. Put together the Quebecor and Tribune debts and you would have enough to buy 81% of AbitibiBowater stock, which closed down 10% today (and 98% from a year ago) at 43 cents per share. The heavily leveraged paper company lists assets of nearly $10 billion but has a market cap of only $25 million.
Quebecor World says it is in the process of exiting Chapter 11, but it’s not clear what kind of compensation its creditors would receive. Tribune’s various newspapers and other media properties are still operating, but the prospects are bleak for major newspaper chains with lots of debt – and for the paper companies that supply them.
Not making the Top 30 list was Catalyst Paper, the dominant newsprint supplier in the West and reportedly a major supplier to Tribune’s Los Angeles Times and other newspapers. That indicates Catalyst's exposure is less than the $1.691 million that the #30 creditor had.
The top of the list is dominated by holders of various debt instruments. The largest trade debt, $23.691 million, is owed to Warner Bros. Television, #13 on the list. Just below that Time Warner subsidiary is Mark Willes, CEO of Times Mirror until Tribune purchased it, with $11.229 million in “retirement and deferred comp”. Three other retired executives also made the list.
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