Moody's says Domtar's sale of its personal care business improves leverage and liquidity
TORONTO, ON, January 12, 2021-
Moody's Investors Service ("Moody's") commented that Domtar Corporation's (Domtar) agreement to sell its personal care business to American Industrial Partners (not rated) is credit positive, but has no impact on the company's Baa3 senior unsecured rating and stable outlook.
The transaction is credit positive because it improves Domtar's leverage and debt maturity profile, while eliminating a challenging business that the company did not have a competitive advantage operating. These benefits outweigh reduced scale and diversity. About $600 million of the proceeds will be used to pay down debt and about $300 million will be returned to shareholders through share buybacks. The $600 million debt reduction reduces Domtar's adjusted debt by almost 50%, while the absence of the personal care business reduces last 12 months adjusted EBITDA by about 30%. Pro forma for the sale and debt reduction, the company's September 2020 adjusted debt/EBITDA (including Moody's standard adjustments) will decrease to 2.5x from 3.2x.
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