DBRS Comments on Weyerhaeuser’s Special Dividend Announcement
Natural ResourcesDBRS notes that Weyerhaeuser Company (WY or the Company) today announced that its board of directors has declared a special dividend of $5.6 billion. (The special dividend includes the regular dividend of approximately $11 million.) Shareholders can choose stock or cash for the special dividend, with the total cash payment limited to 10%, or $560 million, of the total distribution. The Company could fund the cash portion of the dividend with cash on hand of $2.1 billion (March 31, 2010).
This special dividend is related to the Company’s intention to convert into a real estate income trust (REIT), announced on December 15, 2009. (See DBRS press release for more details.) The Company is required to issue a special taxable dividend to shareholders of its undistributed earnings and profits by the end of the year of conversion. The Company intends to make the REIT election when it files its 2010 tax return in 2011. The election would be effective beginning January 1, 2010.
DBRS notes that paying the special dividend has no material impact on the Company’s financial profile. However, the trend of the Company’s ratings remains Negative as its performance has been declining since the forest products industry entered a downturn in 2007. DBRS believes that the North American building products sector has bottomed out. However, the residential construction market remains weak and recent industry indicators do not offer any concrete evidence of an imminent upturn. A meaningful recovery is more likely to occur in late 2011, much later than DBRS’s expectation. As such, the demand for building products is likely to remain subdued in the near future. This poses a significant challenge for WY to restore its credit metrics under soft industry conditions.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The applicable methodology is Rating the Forest Products Industry which can be found on our website under Methodologies.
This is a Corporate rating.