Norbord Inc. Outlook To Positive From Stable On Stronger Expected Credit #BB-# CCR Affirmed

Stocks and Financial Services Press Releases Tuesday November 29, 2016 09:02
TORONTO--29 Nov--S&P Global Ratings

TORONTO (S&P Global Ratings) Nov. 28, 2016-- S&P Global Ratings today said it revised its outlook on Norbord Inc. to positive from stable and affirmed its 'BB-' long-term corporate credit rating on the company.

At the same time, S&P Global Ratings affirmed its 'BB-' issue-level rating on the company's senior secured notes. The '3' recovery rating on the debt is unchanged, and indicates meaningful (50%-70%; in the upper half of the range) recovery in a default scenario.

"The outlook revision reflects our view that average North American oriented strand board prices should increase next year and exceed our previous expectations, due in large part to continued demand growth from U.S. home construction outpacing industry capacity," said S&P Global Ratings credit analyst Alessio Di Francesco. Given the company's high sensitivity to oriented strand board (OSB) prices, we believe this should contribute to a significant improvement in Norbord's core credit measures. "The outlook revision also reflects the company's plan to repay with cash its US$200 million senior secured notes that mature February 2017, which we believe should improve core credit measures through the commodity cycle and potentially contribute to a stronger financial risk profile," Mr. Di Francesco added.

The positive outlook reflects our view that average North American OSB prices should increase next year due in large part to continued demand growth from U.S. home construction outpacing industry capacity. Given the company's high sensitivity to OSB prices, we expect this should contribute to a significant improvement in core credit measures and increase the likelihood that we will raise the rating within the next 12 months. However, the outlook also takes into account the potential for significant OSB price volatility.

We could raise our ratings on Norbord within the next 12 months with continued improvement in its core credit measures next year, trending in line with our expectation of adjusted debt-to-EBITDA of about 1x and FFO-to-debt of about 70% at the end of 2017. In this scenario, we would expect higher OSB prices and gross debt reduction that, in our view, should enable the company to sustain adjusted debt-to-EBITDA firmly below 4x and adjusted FFO-to-debt above 30% through an OSB pricing cycle.

We could revise our outlook to stable within the next 12 months if we expect average OSB prices to decline next year, potentially contributing to adjusted debt-to-EBITDA above 2x and adjusted FFO-to-debt below 45% at the end of 2017. This could occur if U.S. housing starts are trending below 1.3 million in 2017 or if the majority of mothballed OSB mills in North America come back online without sufficient demand to support higher average prices.


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