Desjardins Securities Analyst: Norbord's Actions Should Allow for Breathing Room

Investors are not amused by Norbord Inc.'s (NBDFF.PK) efforts to shore up its balance sheet, throwing shares in the company off a cliff Tuesday morning. The stock was down 30% to a new 52-week low of C$1.24.  

In order to strengthen its balance sheet and liquidity position, Norbord announced after market close on Monday, a C$240-million rights offering, a renegotiation of bank line terms, and a suspension of its C$0.10 per share quarterly dividend until further notice.

Norbord will use the proceeds of the rights offering to repay the Brookfield Asset Management [BAM] unsecured term debt facility and some of the remaining credit lines.

The company also agreed to extend the maturity of the bank line from 2010 to 2011, with the amount available reduced from $235-million to $205-million.

Suspending its dividend is expected to save Norbord an additional $56-m annually in dividend payments and $10 to 20-million in interest expense.

Norbord's liquidity from the offering jumps from $181-million to roughly $300-million, said Desjardins Securities analyst Pierre Lacroix

He wrote in a note to clients:

The implication is mixed for investors; while we are concerned about some shareholder dilution and the dividend cut (partly reflected in the share price), we believe these actions should offer Norbord enough breathing room to withstand the downcycle.