Chatham Asset Management is urging Rayonier Advanced Materials (RYAM) to actively address its looming debt maturities, calling for a more proactive approach from the board in finding a refinancing solution.
Credit and leveraged loan-focused hedge fund Chatham is the largest creditor of RYAM, a Jacksonville, Fla.-headquartered chemical company focused on cellulose-based products, whose debt and common equity has traded lower in recent months.
In a statement this week, Chatham flagged the upcoming maturities of RYAM’ 5.50% senior notes, due June 1, 2024, and 7.625% senior secured notes, due January 15, 2026. Funds affiliated with Chatham hold significant positions in RYAM debt, including the 2024 and 2026 notes, as well as short positions and put options in shares of RYAM, the manager noted.
“Following an extended period of inaction and unsuccessful refinancing attempt earlier this year, we are deeply dismayed by RYAM’s continued lack of urgency in addressing its debt maturities as the 2024 notes become current next Thursday, June 1, 2023,” the firm wrote.
RYAM’s valuation in focus
Chatham said RYAM’s 2026 notes are now trading “significantly lower” than they were in both January 2023, when the board refused a proposed refinancing transaction, and in March 2022 when Chatham first suggested the company begin the process of addressing its debt maturities.
It added that RYAM’s common equity has also declined since March 2022, a drop it attributed to “the overhang of a substantial near-term debt maturity, the absence of a concrete financing strategy, and poor capital allocation by management.”
Chatham is now urging the company to engage in proactive dialogue with its financial advisor and auditors about a rational solution to its debt.
“Rather than shopping around for what it deems as ‘acceptable terms’, the board’s fiduciary duty should be to accept the prevailing market rate for its debt, regardless of whether this represents a concession to the current trading level of the 2026 notes, which recently traded at a year-to-date low of $87.50, or a 13.4% yield to maturity,” the statement noted. “The company faces a perilously tight maturity window for a below investment grade entity, and we fear going concern language in the company’s next financials. RYAM is a solvent, eminently financeable company, and the obvious remedy is a prompt financing package.”
