S&P cuts Domtar to junk

S&P said it cut Domtar Corp.’s issuer credit and senior unsecured debt ratings to BB from BBB- and removed the ratings from CreditWatch with negative implications, where they had been placed May 11.

Concurrently, the agency gave BB+ issue and 2 recovery ratings to Domtar Corp.’s secured debt, previously issued by Pearl Merger Sub Inc., now a subsidiary of Domtar’s Karta Halten. Pearl sold $775 million of secured notes, obtained a $525 million secured term loan B and a $250 million delayed-draw term loan. S&P plans to withdraw Pearl’s ratings.

“We expect the increase in Domtar's debt burden will result in adjusted debt to EBITDA (leverage) of about 3x at year-end 2021 and the mid-2x area in the following two years. The company's prospective leverage is well above our assumptions before the acquisition announcement. We assume a gradual improvement in Domtar's credit measures beyond pro forma levels this year, mainly from free cash flow generation that bolsters the net debt position,” the agency said in a press release.

S&P noted Domtar's higher debt profile will increase the sensitivity of the company's credit measures to future commodity price fluctuations.

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