Plum Creek's New Credit Facility - Analyst Blog

Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., has recently secured a new $600 million revolving credit facility scheduled to mature in January 2015.

The new credit facility replaces the existing $750 million revolving credit facility scheduled to mature in June 2011. Plum Creek decided to reduce the borrowing capacity of its credit facility in order to minimize the financing costs, while still maintaining adequate levels of liquidity.

Based in Seattle, Washington, Plum Creek owns one of the largest and most geographically diversified private timberlands in the U.S. The company produces lumber, plywood and medium density fiberboard in its wood products manufacturing facilities. Plum Creek also operates a real estate development business as a taxable REIT subsidiary. In addition, the company has natural resource businesses that focus on opportunities such as mineral extraction, natural gas production, and communication and transportation.

Plum Creek's business is affected by the cyclical nature of the forest products industry. In addition, prices of logs and manufactured wood products remain highly volatile. As such, factors beyond the direct control of the company undermine its long-term growth potential.

In addition, Plum Creek has a huge debt burden with total long-term debt being $1.6 billion as of September 30, 2010. Management also felt that due to the challenging macroeconomic environment, growth in real estate revenues of the company was relatively lower as individual and family buyers remained cautious.

Consequently, we maintain our ‘Underperform' recommendation on Plum Creek, which presently has a Zacks #5 Rank indicating a short-term ‘Strong Sell' rating. However, we currently have a ‘Neutral' recommendation and a Zacks #3 Rank (‘Hold' rating) for Weyerhaeuser Co. (WY), one of the competitors of Plum Creek.

 
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