S&P Global Ratings lowered its issuer credit rating on U.S.-Based Northwest Hardwoods Inc. to ‘SD’ (selective default) from ‘CCC-’. At the same time, S&P lowered its issue-level rating on the company’s senior secured notes to ‘D’ from ‘CCC-’.
“We believe it is unlikely that Northwest Hardwoods will make the August 1 interest payment due on its senior secured notes absent a debt restructuring,” S&P said.
The semiannual interest payment on Northwest Hardwoods’ 7.5% senior secured notes was due on Aug. 1, 2020. However, the company elected to not make this payment at this time and has entered into a 30 day grace period. Also the company is in discussions with its largest noteholders regarding a consensual restructuring. Softening demand and lumber pricing, coupled with weak economic activity in China have affected the company’s performance over the last 18-24 months. The COVID-19 outbreak in early 2020 has further dampened demand levels. However, the company has been able to generate some positive cashflows driven primarily by cost curtailment actions and liquidation of inventories and receivables.
“While the company may have sufficient liquidity to make the August 1 interest payment, we think it is unlikely it will make the interest payment without pursuing some type of debt restructuring. We would consider such a debt restructuring to be distressed and tantamount to a default. Therefore, we are lowering our issuer credit rating on Northwest Hardwoods to ‘SD’ and our issue-level rating on its senior secured notes to ‘D’,” S&P said.
“In addition, our view also incorporates that Northwest Hardwoods’ entire capital structure, including its senior secured credit facility and senior notes, come due in the next 12 months,” the rating agency said.
S&P will reassess its ratings upon future developments regarding interest payments or restructuring.
Northwest Hardwoods is a manufacturer of high-quality hardwood lumber in North America. It manufactures and sells over 30 North American species, such as cherry, hard maple, and yellow poplar. The company operates through a network of sawmills, lumber concentration and dry kiln yards, merchandising log yards, remanufacturing plants, and sales offices in the U.S., Canada, China, and Japan. The company also imports and distributes exotic hardwood lumber, hardwood plywood panel products, and engineered wood components and sells remanufactured oriented strand board (OSB) and other engineered wood products.
S&P now views Northwest Hardwoods’ liquidity as weak because its senior credit facility and notes will both come due in the next 12 months and there is a material deficit in the company’s sources of liquidity relative to its uses.