Re: Credit freeze reported in Asia

[mobes]

In Asia of all places!!!!!???  :mrgreen:  :mrgreen:  :mrgreen:  I'd love to see how the western countries tinker with their export numbers this quarter!

[CrackSmokeRepublican]

Looks like the Credit Freeze will affect certain sectors in North America. The Paper and Packaging is on the forefront of the "real economy".  This may be a rolling credit freeze as certain sectors collectively find they can't keep up or get extensions on loans.  

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Credit freeze threatens N. American paper sector

Editor: Bruce Meng
7 Nov 2008 02:16:19 GMT

NEW YORK, Nov 6 - North American paper and packaging producers that have been struggling with falling demand and high costs are now being pushed to the brink by the credit market freeze.

Manufacturers of paper, newsprint and containerboard -- the type of heavy paper used in corrugated packaging -- pushed through several price increases in the first-half of 2008 in a bid to keep pace with cost inflation.

But these pricing gains are likely to erode quickly, as steady declines in advertising and direct mailing have hurt paper and newsprint demand, while a sharp slowdown in U.S. economic growth threatens to cause a glut in containerboard supply that could quickly undermine the sector.

"We would not be surprised to see the probability of default increase significantly for the sector (in 2009)," said Sam Goodyear, an analyst at research firm CreditSights.

"We are increasingly concerned that as the demand side of the equation worsens, producers' pricing power will really begin to plummet," he added.

The largest North American newsprint maker, AbitibiBowater Inc, and the second-largest corrugated packaging maker in the region, Smurfit-Stone Container Corp, have seen their shares plunge roughly 90 percent this year.

The stocks of both companies have been hovering at just above a dollar in recent weeks, due to concerns that the two companies may not be able to meet or refinance major debt obligations or loans that come due over the next two years.

Smurfit-Stone's rival, Chesapeake Corp, is battling to meet its own debt obligations. Its lenders under a $250 million senior secured credit facility agreed on Monday to hold off conditionally on their claims until Dec. 10.

Last month, shares of Chesapeake Corp were delisted from the New York Stock Exchange for failing to meet minimum listing requirements.

Similarly, other U.S. and Canadian companies like Boise Inc , Verso Paper Corp, Graphic Packaging, Caraustar Industries and Catalyst Paper have seen their share prices tumble, due to a sharp decline in demand and financing-related concerns.

The companies that have seen their share prices collapse "are the ones with the weak balance sheets and questionable liquidity," said Longbow Research analyst Joshua Zaret. "Clearly, those have been taken down to the next level."

CDS SPREADS WIDEN

Credit default swaps on AbitibiBowater's and Smurfit Stone's debt are trading at distressed levels and spreads have widened in the last month, indicating increasing concerns that the companies may default on their debt.

Last month, Smurfit-Stone said liquidity improved in the third quarter and it remains in compliance with all financial covenants. However, it still costs $2.15 million annually to insure $10 million of the company's debt for five years.

AbitibiBowater's debt, which is largely held under two separate entities -- Abitibi-Consolidated and Bowater Inc -- costs even more to insure than that of Smurfit-Stone.

Even if companies do not have significant debt coming due, there are many that have major bank facilities coming due, and their ability to refinance and renegotiate these at favorable terms remains to be seen.

The big issue right now is clearly financing, and the industry needs to see how soon credit markets ease and how fast credit permeates through the market, said Longbow's Zaret.

One big concern is that the companies most in need of the liquidity are likely to be the last to receive the financing, leading to a higher possibility of failures.

The stronger U.S. dollar is also a major concern for many U.S. companies, as exports from the sector that buoyed results earlier this year have begun to decline. However, the weaker Canadian dollar will ease some pressure off Canadian manufacturers.

U.S. exports from other sectors too are likely to be hurt by the strengthening dollar, causing more erosion in domestic corrugated-box demand.

"The industry has shown it understands supply-side discipline, and when times are good it's very easy to practice. Now the industry has to put its money where its mouth is on the down cycle, and that's an unknown," said Zaret.

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