S&P downgrades Tembec

Standard & Poor's said it lowered the corporate credit and senior unsecured debt ratings of Tembec Inc. and subsidiary Tembec Industries Inc. to CCC- from CCC+. The short-term debt rating on Tembec remains C.

The outlook is negative.

S&P said the ratings reflect Tembec's weakening liquidity position and the company's struggle to generate positive EBITDA or improve its weak cost position. The company's survival is highly dependent on external factors such as pulp prices, the depreciation of the Canadian dollar or a resolution of the United States-Canada softwood lumber dispute that resulted in a return of the C$310 million of softwood lumber duties Tembec has deposited with the U.S. government.

Liquidity should be bolstered in the next two months by the sale of the OSB mill (cash proceeds of C$88 million) and the monetization of a portion of the softwood lumber duties on deposit through a federal government loan-guarantee program (C$40 million), the agency said. Nevertheless, liquidity will be tight, as the upcoming quarter typically results in a large working capital swing (C$90 million) and about C$61 million in semi-annual cash interest payments are also due.

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