Norske Skog Yields Rise After Reaching Covenant Pact: Oslo Mover

Yields on Norske Skogindustrier ASA’s 7 percent 2017 bonds gained in Oslo trading as changes to restrictions on the papermaker’s credit facility failed to extend beyond the first quarter.

The yield on Europe’s third-largest newsprint maker’s 7 percent senior unsecured euro-denominated note increased to 17.73 percent from 17.48 percent yesterday, according to BNP Paribas SA prices compiled by Bloomberg. The yield was as low as 13.94 percent on Jan. 14.

Norske Skog’s banks agreed to ease loan terms for the first quarter while the size of its credit line was reduced by half to 70 million euros ($91.2 million), the Lysaker, Norway-based papermaker said in a statement today. Norske Skog is trimming debt as it seeks to cut a 6 billion-krone ($1 billion) net interest-bearing debt burden amid excess supply in the newsprint market and growing competition from online media.

“The fact that Norske Skog has only negotiated the covenants for the first quarter and with a simultaneous reduction in facility size may indicate a more difficult situation than we had expected,” Riikka Tuominen, a credit analyst at Nordea Bank AB in Helsinki, said in a note.

The company is working on refinancing its bank facility and is in “continuous dialogue with its four relationship banks regarding possible covenant resets for later quarters,” Norske Skog said, without providing further detail.

The latest agreement with banks raises an upper limit on net interest-bearing debt as a ratio to earnings before interest tax, depreciation and amortization to 5.75, while a lower limit on Ebitda to net interest expenses was cut to 1.75, Norske Skog said. That compares with an earlier leverage ratio restriction of 4.25 in the first quarter and an interest cover ratio of 2.5, according to Norske Skog’s fourth-quarter report.

“We find the recent tightening of Norske Skog’s bond spreads and credit default swaps as unwarranted,” Tuominen said. “We see today’s announcement as credit negative.”