DBRS Places the Ratings of Norbord Inc. Under Review with Negative Implications

DBRS Limited (DBRS) has today placed the Issuer Rating and the Senior Secured Notes rating of Norbord Inc. (Norbord or the Company) Under Review with Negative Implications following the Company’s announcement that it has signed a definitive agreement to acquire all of the outstanding shares of Ainsworth Lumber Co. Ltd. (Ainsworth) in an all-share transaction. The transaction is subject to approval by a majority of the minority shareholders of both Ainsworth and Norbord as well as customary closing conditions, including court approval of the term of arrangement. Brookfield Asset Management Inc., majority shareholder of both Companies, supports the transaction but has abstained from the process. The transaction is not reportable under regulatory requirements due to a common controlling shareholder; however, U.S. and Canadian antitrust and competition authorities may review this at their discretion. The transaction is expected to close in the first quarter of 2015.

DBRS notes that the acquisition of Ainsworth does enhance the business risk profile of Norbord. The combined company will be the global leader in oriented strand board (OSB), expanding Norbord’s market presence to Japan and China. Additionally, the two companies only have modest overlap in coverage of the North American market, and Ainsworth also materially strengthens Norbord’s presence in the West Coast regions. Furthermore, Ainsworth would also expand and strengthen Norbord’s product offerings with more value added products.

Even though the acquisition is financed by the issuance of Norbord shares, the addition of Ainsworth’s debt has led to a meaningful increase in debt and a resultant deterioration of all debt coverage ratios at Norbord. The Company’s financial profile, on a pro forma basis, would be weaker than the current rating range. The OSB market in North America is underperforming unexpectedly despite a modest increase in residential construction activities. Weak product prices caused by the deterioration in the industry capacity utilization rate have led to a sharp decline in financial performance at both Norbord and Ainsworth.

DBRS will resolve the Under Review with Negative Implications status in the next few months in view of the timing of the closing of the transaction. DBRS’s assessment will focus on the Company’s financial profile on a sustainable basis, taking into account the impact of the potential synergies and the benefits of the dividend cut as well as the recovery in the OSB market, the timing of which is uncertain.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the Forest Products Industry and DBRS Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.