RYAM Q2 2024: Asset sale bids at 6-7x EBITDA could cut debt
- Attractive asset sale opportunities: The company is progressing on the sale process for its paperboard and high-yield pulp assets, with recent bids benchmarked against attractive valuations (e.g., around 6-7x EBITDA from a comparable sale) which could unlock significant value and potentially reduce debt levels.
- Strong prebiotic initiative: The prebiotics animal feed project is advancing toward production trials in September with a targeted startup in late 2025 and an expected return on equity above 30%, indicating a promising high-margin growth driver.
- Favorable refinancing outlook and cost profile: The company is actively engaging with potential lenders for refinancing its senior notes, with proposals expected early in September and likely completion in Q4, which should help lower interest costs and improve its overall liquidity while shifting to a more favorable revenue mix (e.g., decreasing the viscose share).
- Asset Sale Complexities: Challenges in the sale process for the paperboard and high-yield pulp assets, including unresolved operational, personnel, and contractual issues, could delay potential cash infusions and complicate asset divestitures.
- Refinancing Risks: Uncertainty around the refinancing of the 2026 senior notes—with proposals only expected to start coming in by early September and completion likely delayed until Q4—poses potential liquidity and balance sheet risks.
- Global Pricing Pressures: Ongoing pricing pressures from European paperboard imports and vigorous competition in China, coupled with uncertainties around prolonged acetate destocking into 2025, underscore concerns over weakening demand and margin pressures.
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Refinancing & Viscose
Q: When will refi close and how's viscose trending?
A: Management expects proposals to start in early September with a closing likely in Q4, and viscose production should remain around 3% of sales, with further reduction in 2025. -
China Markets
Q: What is the update on China’s high-yield pulp?
A: They explained that Chinese paperboard plants are repurposing their pulp lines, creating pricing pressure, so RYAM is shifting focus to markets like India and Europe. -
Asset Sale Process
Q: What factors affect bids for asset sales?
A: Beyond just price, issues such as personnel and shared utilities are influencing bids, with management using a benchmark of around 6-7x EBITDA to gauge value. -
Prebiotics Initiative
Q: Is the prebiotics project on schedule for late '25?
A: Management is progressing with GRAS approval and trial production, targeting a startup in late 2025 with returns above 30%. -
Acetate Destocking
Q: Will acetate destocking finish by year-end?
A: Demand is leveled throughout 2024, but elevated Asian inventories suggest the destocking effect may extend into 2025. -
European Imports
Q: Why are European imports increasing?
A: Weak economic conditions in Europe have led to surplus capacity, prompting aggressive import activity by European paperboard producers. -
Ethers Demand
Q: Is there improved market demand for ethers?
A: There’s a modest pickup driven partly by restocking and improved production efficiencies, though it remains reliant on normalizing end-market conditions. -
Guidance Increase
Q: What drove the raised financial guidance?
A: The boost came largely from a $10M CEWS benefit, accelerated customer sales ahead of plant suspension, and roughly $5M gains from better ether sales, adding up to a $15-20M uptick.