Plum Creek Repays Debt - Analyst Blog

Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., has recently repaid $463 million debt utilizing the proceeds of $575 million from 4.7% bond issued earlier. The company fully repaid $250 million term-credit agreement scheduled to mature in June 2012 and $213 million of senior notes scheduled to mature in fourth quarter 2011, including $176 million of 7.66% notes and $37 million of 7.97% notes.

Plum Creek would record a one-time charge of $13 million or $0.08 per share in fourth quarter 2010 related to these transactions. The early repayment of debt will help to reduce the interest burden of the company by approximately $14 million. The strategic move is aimed at deleveraging the balance sheet and increasing its liquidity.

Earlier in December 2010, Plum Creek had secured a new $600 million revolving credit facility that is scheduled to mature in January 2015. The new credit facility replaced the erstwhile $750 million revolving credit facility scheduled to mature in June 2011. The transaction was intended 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 had 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 #4 Rank indicating a short-term ‘Sell' rating. However, we currently have a ‘Neutral' recommendation and a Zacks #3 Rank (short-term ‘Hold) for Louisiana-Pacific Corp. (LPX), one of the competitors of Plum Creek.

 
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