Wednesday, December 17, 2008
Paper war breaks out as White Birch undercuts Abitibi
Paper war breaks out as White Birch undercuts Abitibi's price discipline
By Andrew Ragsly
White Birch Paper broke ranks with other newsprint manufacturers this month by slashing prices to capture market share amid dwindling demand, industry sources and two buysiders told Debtwire.
Privately held White Birch is the second largest producer of newsprint in North America with 18% of total market share. The company is flouting attempts by industry leader AbitibiBowater to enforce price discipline by lowering its going contract rate. Abitibi wants to protect pricing in the face of persistent order declines from ailing newspaper publishers, said the sources.
Specifically White Birch cut a deal with Gannett Company this month to supply newsprint through 2009 well-below November's industry-average price point of USD 770 per ton, said two of the industry sources and one of the buysiders. While at a lower price point, the deal is rumoured to boost the volumes White Birch will supply to Gannett year-over-year, one of the sources said.
The pricing war is hitting AbitibiBowater at a particularly inopportune moment. The company faces USD 919m of maturities over the next year, including a USD 347m Libor+ 800bps term loan due 30 March. Management needs to impress lenders with a bullish cash flow story if it hopes to refinance those obligations, said the buysiders.
Spokespersons for White Birch, AbitibiBowater and Gannett declined to comment.
Abitibi's USD 347m Libor+ 800bps term loan was bid at 75 today, down from 82 on 2 December, according to Markit. Bowater's USD 250m 9% traded at 27 on 3 December, down from 45 on 19 November, according to TRACE. White Birch's USD 100m Libor+ 480bps second-lien term loan was bid at 15 today, down from 33 on 10 November. The company's USD 475m Libor+ 275bps first-lien term loan was bid at 48.25 today, down from 59.12 on 24 November, according to Markit.
"AbitibiBowater, as the number one market share player [with 41%], was always going to hold onto prices as long as they could," said one of the industry sources. "It's finally starting to show up now that smaller players are breaking ranks, but White Birch and other companies had been making their undercutting moves since back around September."
AbitibiBowater bowed to pressure from White Birch last week when it rescinded a USD 20 per-ton price increase, according to three of the industry sources. The Canadian-US behemoth also announced last week the removal of 830,000 tons of newsprint capacity.
West Coast paper producers Catalyst Paper (7.8% market share) and Norpac (5%), have already been pricing at a discount to the AbitibiBowater-dominated East Coast market for the better part of a year. West Coast newsprint prices tracked near USD 700 per ton in November, said the sources. An official from Norpac declined to comment, and Catalyst Paper did not return calls.
The pricing conflict is also spreading into the coated free sheet paper market as Gannett is rumoured to have negotiated a USD 1,060 per ton contract with NewPage, down from November's USD 1,100 per ton price point, said one of the buysiders. A spokesperson for NewPage would not comment on specific contracts with its customers, but maintained the company is "holding price just fine".
Similar to newsprint, the coated paper sector has been under pressure to take out capacity in order to offset demand declines and boost pricing. Coated free sheet and newsprint consumption were both down roughly 15% year-to-date, according to a sellside analyst.
NewPage's USD 800m 10% second-lien notes due 2012 were bid at 40.5 on 5 December, down from 56.5 on 24 November, according to TRACE