MONTREAL- Newsprint giant AbitibiBowater Inc. (TSX:ABH) announced plans Fridayto boost its financial flexibility by selling its controlling stake ina large Quebec hydroelectric station and paring debt by US$2.4 billion.
Thehard-pressed paper and wood-products company will sell its 60 per centinterest in its largest hydro plant on the Manicouagan River toHydro-Quebec for C$615 million. American aluminum producer Alcoa(NYSE:AA), which owns the remaining 40 per cent, passed on its right tobuy the power project.
Montreal-basedAbitibiBowater said its proposed recapitalization - offering newcorporate notes, shares and warrants in exchange for outstanding debt -would reduce its annual interest expenses by US$162 million.
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Therefinancing would also raise US$350 million in new debt not maturinguntil 2014, and provide "business continuity for employees, tradecreditors and customers."
The companysaid the planned restructuring of the Abitibi-Consolidated Inc.subsidiary will not affect its obligations to workers, includingpension and benefit plans.
Therecapitalization "is another important step in AbitibiBowater's ongoingefforts to deleverage the company and refinance its current debtobligations," stated CEO David Paterson.
"Thetransaction offers substantial benefits to AbitibiBowater, increasingits financial stability while also reducing the company's annualinterest costs and improving overall liquidity."
Dundeeanalyst Richard Kelertas said the refinancing was positive forAbitibiBowater, especially since the global credit crunch has made suchmoves difficult for companies.
"In normaltimes they probably could have done it but in this market we thought itwould be very difficult," Kelertas said in an interview with BNN, abusiness news channel based in Toronto.
"My hat's off to them. They are surviving this downturn."
Debtrating agency DBRS, which has the company under review with negativeimplications, called the recapitalization positive, but said a ratingaction was not warranted given the risk that the restructuring may notbe approved.
AbitibiBowater said it haslined up the support of debtholders with more than $1 billion or 34 percent of outstanding notes. It requires the support of two-thirds ofnoteholders.
The company has been hithard by the slumping North American economy, which has reduced demandfor newsprint and its other products. AbitibiBowater has cut jobs andshut down mills to deal with a slump in its business, including a papermill in central Newfoundland that had operated for a century.
Thenon-binding agreement in principle with Hydro-Quebec does not affectthe company's Baie-Comeau paper mill or the company's otherhydroelectric plants, including one it wholly owns in Saguenay.
The hydro station is near Hydro-Quebec's Manic network at the St. Lawrence River.
Sellingthe hydro assets will increase the costs of operating the adjacentpaper mill. But the company also plans to invest about $100 million inthe next two to three years to make the mill more efficient and offsetthe higher power costs.
The mill is oneof Abitibi's largest newsprint operations. About 75 per cent of its550,000 tonne of annual production is exported. The investment isdesigned to make upgrades to permit the entire production to be sent togrowing markets around the world.
NaturalResources Minister Claude Bechard said the government is happy to helpAbitibi while regaining control of its natural resources. He wouldn'texclude buying other dams, but added there are no other talks underway.
HydroQuebec said it's the first time since power was nationalized in the1960s that the utility has purchased a privately owned generatingfacility.
Under the recapitalizationproposal, US$2.9 billion of Abitibi-Consolidated notes are to exchangedfor $321 million in new notes paying 12 per cent interest and $810million in 11 per cent notes, along with 86.7 million shares ofAbitibiBowater and 230.7 million warrants in three series to buy stockat prices ranging from $1.00 to $1.50 per share.
Therealso is to be a $350-million offering of new notes with a face value of$389 million attached to 222.2 million warrants to buy shares at $1.25each.
The company plans to repay $413 million of 13.75 per cent notes due in 2011.
Theproposal is subject to noteholder acceptance at meetings set for theend of April and approval by Quebec Superior Court, as well as thecompletion of the sale of the Manicouagan Power Co. stake and previousexchange offers and note issues by Bowater Inc. and other subsidiaries.
Tembec Inc. (TSX:TMB) underwent a similar recapitalization last year, converting US$1.2 billion of debt into equity.
On the Toronto Stock Exchange, AbitibiBowater's shares down three cents to 82 cents, a loss of 3.5 per cent.