No Quick Exit For AbitibiBowater

By Dead Tree Edition

USA, Nov. 6, 2009 (Viewpoint) - With AbitibiBowater likely to remain under bankruptcy protection well into next year, a Canadian court has approved additional financing for the giant papermaker.

The company received permission Friday from a Montreal Superior Court to increase its debtor-in-possession (DIP) financing from $140 million to $370 million, despite the objections of some creditors.

Ernst & Young Inc., the court-appointed monitor, recommended approval of the DIP financing because it believes AbitibiBowater will remain under bankruptcy protection until at least late next summer. The accounting firm told the court that AbitibiBowater, North America's largest newsprint maker, projects negative cash flow of $70 million next year.

AbitibiBowater was hoping to exit bankruptcy protection in just a few months. But Ernst & Young says "it will take a number of months to complete the business plan and consider all of the restructuring scenarios, negotiate the Plan of Arrangement, raise exit financing, conduct creditor meetings, complete negotiations with employee groups and complete all of the other tasks required to emerge" from bankruptcy protection.

The company's liquidity requirements "are highly dependent upon the market price and demand for paper and wood products as well as the exchange rate of the Canadian dollar relative to the U.S. dollar," notes the report.

AbitibiBowater's projections assume that announced newsprint price increases of $120 per ton from the August low will be implemented by the first of the year and then level off. That is more conservative than independent projections from RISI, which show newsprint prices continuing to rise during 2010.

But the projections also assume an exchange rate of 1 Canadian dollar to 90 U.S. cents, while in recent weeks the Canadian dollar has been a few cents stronger. With each penny in the exchange rate equating to $17 million in annual cash flow and the recent volatility in the U.S. dollar, AbitibiBowater needs access to additional DIP funds so that it can weather fluctuations in currency and paper markets, the Ernst & Young report says.

Meanwhile, a provincial official has made vague comments in recent days about Quebec possibly investing in AbitibiBowater, and a Canadian union has delayed contract negotiations until it gets resolution on the company's $1.3 billion in unfunded pension liabilities.

AbitibiBowater (AKA AbitibiUnderwater) entered bankruptcy protection in April and has subsequently been damaged even further by declining paper prices and the strengthening Canadian currency.

This article originally appeared at Dead Tree Edition (http://deadtreeedition.blogspot.com), which is written by a magazine-industry manager who goes by the pseudonym D. Eadward Tree. Comments made in this blog are the opinion of the author and do not necessarily reflect that of RISI, Inc., its parent company or sponsors.

For other AbitibiBowater and magazine paper commentary at Dead Tree Edition, see "There's Little Clarity About Some SCA Papers" and "Noisy Boise Is Reviving Its Newsprint Sales".