Rayonier Advanced Materials (RYAM) Outlook Lowered to Negative by S&P

Standard & Poor's Ratings Services said today it affirmed its ratings, including its 'BB+' corporate credit rating, on Jacksonville, Fla.-based specialty cellulose pulp producer Rayonier Advanced Materials Inc. (NYSE: RYAM).

We also revised the rating outlook to negative from stable, reflecting expected lower earnings and higher debt to EBITDA leverage--levels that are weak for the current rating for calendar year 2015.

"Our negative outlook reflects Rayonier's expectations for reduced earnings through the remainder of 2015 due to currently weak pricing and demand for cellulose specialty products, resulting in debt-to-EBITDA leverage of higher than 4x by year end," said Standard & Poor's credit analyst Thomas Nadramia.

We could downgrade RYAM if demand prospects and pricing do not improve in the latter half of 2015 and into 2016, resulting in the debt-to-EBITDA ratio continuing to trend above 4x into 2016, or if FFO to debt remained below 20%. We could also lower the ratings if RYAM underperforms our expectations in 2015 due higher-than-expected raw material costs, or if demand declines further than expected in our base case scenario.

We could revise our outlook back to stable over the next 12 months if cellulose fiber demand and pricing recover from current low levels, such that debt-to-EBITDA leverage were likely to fall below 4x by the end of 2016. For this to occur, we estimate revenues would need to increase about 3% from current levels and EBITDA margins would need to increase by about 150 basis points to about 25%, which is still well below recent historical levels.

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