Weyerhaeuser draws, issues debt to boost liquidity during uncertainty

By Devika Patel

Knoxville, Tenn., May 4 – Weyerhaeuser Co. increased its liquidity materially last quarter by refinancing its revolver, drawing $550 million on it, selling $750 million of 4% 10-year notes and earmarking the proceeds of those notes to repay its 2021 debt maturities.

“In the first quarter, we took several steps to enhance our financial flexibility,” senior vice president and chief financial officer Russell S. Hagen said on the company’s first quarter ended March 31 earnings conference call on Monday.

“First, we refinanced our $1.5 billion revolving credit facility to capture more favorable pricing and extend its maturity to 2025.

“Second, we increased our cash on hand through a precautionary $550 million draw on our revolver.

“Today, this facility still has $950 million of available capacity remaining.

“Third, we issued $750 million of 4% notes through a public bond offering with the net proceeds to be used to repay our 2021 debt maturities and, fourth, we completed the sale of our Montana timberlands for $145 million in cash,” Hagen said.

The company also plans to redeem $568,595,000 of 4.7% notes due 2021 on May 18, and after this debt matures, Weyerhaeuser will have no debt maturing until 2023.

“Subsequent to the end of the first quarter, we submitted notice that this month, we will be redeeming our $569 million notes due in March 2021,” Hagen said.

“Following this repayment, we have a total debt of approximately $6.8 billion.

“We intend to repay $150 million of that note in 2021 at maturity.

“After these repayments, we have no additional debt maturities until 2023,” Hagen said.

The company fared well last quarter, despite a decline in demand within the housing industry due to the Covid-19 pandemic and stay-at-home orders.

“Although housing starts declined to 1.2 million for the month, our sales volumes remained steady through late March,” president and chief executive officer Devin W. Stockfish said on the call.

“Against this backdrop, each of our businesses delivered strong first quarter operating results despite the rapidly changing upstream market conditions,” Stockfish said.

Although March and last quarter looked good, management expects pricing and demand to be sluggish for the remainder of the year.

“There continues to be a high level of uncertainty regarding the duration and magnitude of the societal and economic impacts of this Covid-19 pandemic,” Stockfish said.

“We expect the trajectory of the economic recovery will be bumpy and gradual.

“This drives significant uncertainty regarding the medium-term outlook for U.S. housing activity.

“We anticipate that pricing and demand will remain choppy across our markets for much of 2020,” Stockfish said.

There might be a pickup in activity once the stay-at-home orders expire, but demand will still decline.

“Once stay-at-home orders are lifted, our customers tell us they anticipate a near-term pickup in activity as builders complete in-process homes and work through pre-pandemic order backlogs,” Stockfish said.

“However, following that immediate surge, most are anticipating lower sales and construction activity until employment and consumer confidence materially improve,” Stockfish said.

The company is cutting many costs to preserve liquidity.

“In light of these expectations, we're taking actions to preserve liquidity and financial flexibility and maintain our capital structure during this unprecedented time,” Stockfish said.

“First, we're cutting 2020 capital expenditures by $90 million.

“Second, we're reducing nonessential expenses by $55 million. This includes G&A and operating expense reductions across our businesses and corporate functions.

“Third, we will defer $25 million of federal payroll tax payments until 2021.

“Fourth, our senior management team and board of directors have elected to reduce their compensation for the remainder of 2020.

Stockfish said he will reduce his base salary by 30%, the board will reduce its fees by 20% and the remainder of the senior management team will reduce their base salaries by 10%.

The company is also temporarily suspending its quarterly dividend.

“The dividend suspension is an extremely difficult decision but one that we believe is prudent given deteriorating end market conditions and a highly uncertain economic environment,” Stockfish said.

The company is confident it will pull through these uncertain times and that its long-term outlook is positive.

Hagen said the company has a solid balance sheet, a competitive cost structure and that its 11 million acres of timberlands provide strong asset coverage.

The company holds investment-grade credit ratings and remained well in compliance with its debt covenants, Hagen noted.

“Moreover, our trees will continue to grow and generate value now and into the future, regardless of the economic conditions,” Hagen said.

Adjusted EBITDA for the first quarter of 2020 was $413 million compared with $365 million for the same period last year and $260 million for the fourth quarter of 2019.

Cash and cash equivalents were $1,458,000,000 as of March 31, 2020, compared to $259 million as of March 31, 2019.

Net long-term debt was $6,299,000,000 as of March 31, 2020, compared to $6,156,000,000 as of March 31, 2019.

On Jan. 29, the company amended and restated its $1.5 billion senior unsecured revolving credit facility with Wells Fargo Bank, NA as administrative agent.

Wells Fargo, JPMorgan Chase Bank, NA, MUFG Bank, Ltd., BofA Securities, Inc., SunTrust Robinson Humphrey, Inc., Cooperatieve Rabobank UA, New York Branch, PNC Capital Markets LLC, Bank of Nova Scotia and U.S. Bank NA were the joint lead arrangers and joint bookrunners.

JPMorgan and MUFG are the syndication agents. BofA, Truist Bank, Cooperatieve Rabobank, PNC, Scotiabank and U.S. Bank are the documentation agents.

Interest is Libor plus 79 basis points to 115 bps and the commitment fee is 8.5 bps to 22.5 bps, both depending on ratings.

The revolver will expire in January 2025.

Loans may be used for general corporate purposes, including for working capital purposes, for debt repayment and to finance acquisitions, stock repurchases and capital expenditures.

Covenants require a minimum total adjusted shareholders’ equity of $3 billion and a funded debt ratio of 65% or less.

On March 26, Weyerhaeuser priced $750 million of 4% 10-year senior notes (Baa2/BBB) at a spread of 337.5 basis points over Treasuries.

The issue priced at 98.47 to yield 4.188%.

The notes were initially talked at the Treasuries plus 375 bps area.

BofA Securities, Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, MUFG and Wells Fargo Securities, LLC were the bookrunners.

On March 30, the company drew down $550 million under its revolving credit facility to further strengthen its balance sheet and maintain financial flexibility and liquidity.

The facility expires in January 2025 and has $950 million of capacity remaining.

On April 17, Weyerhaeuser reported that it plans to redeem its $568,595,000 of 4.7% notes due 2021 on May 18.

The notes will be redeemed at $1,033.79 per $1,000 note, reflecting the make-whole payment due on early redemption of the notes, plus accrued interest to the redemption date. Accrued interest will equal $4,676,693.88 in total.

Weyerhaeuser is a timber company based in Federal Way, Wash.

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