Riskiest Company in Europe Gets Bond Boost From Oil Price Slump

By Luca Casiraghi

Photographer: Jack Atley/Bloomberg

A Norske Skogindustrier ASA paper mill operates in southern Tasmania. Norske Skog gets... Read More

Europe’s riskiest company is getting a lifeline from the biggest slump in crude in more than half a decade.
Bonds of Norske Skogindustrier ASA (NSG) returned 13 percent since the start of the year, the most among 565 securities in Bank of America Merrill Lynch’s euro high-yield index. The distressed Norwegian papermaker’s probability of default fell by eight percentage points to 72 percent, according to credit-default swap data compiled by CMA.
Norske Skog gets almost all of its revenue outside of Norway and is benefiting as the slide in oil prices undermines the currency of the nation, which is the largest crude producer in Western Europe. The papermaker said its earnings increase by about 30 million kroner ($4 million) for each 1 percent decline in the currency.
“It gives them some breathing room in the short term,” said Henrik Blymke, a senior credit analyst at SEB AB in Oslo. “As a non-oil exporter, Norske Skog stands to
benefit from a weaker krone.”
The krone dropped 22 percent against the dollar and 8 percent versus the euro since June as Brent crude, the benchmark grade for more than half the world’s oil, slid by more than 50 percent. Crude is trading near $49 a barrel after reaching a 5-1/2 year low of $45.19 last week.

Bonds Gain

Norske Skog’s 388 million euros ($449 million) of bonds due June 2017 rose 7 cents on the euro this year to 64 cents, to yield 30 percent, according to data compiled by Bloomberg. Its 130 million euros of notes due June 2016 gained 8 cents to 83 cents, yielding 29 percent.
The company may still struggle to repay bonds maturing beyond this year, Blymke said.
“Norske Skog is well trained in managing debt maturities and is as always considering all options,” said Carsten Dybevig, a company spokesman.
Credit-default swaps insuring 10 million euros of Norske Skog’s debt for five years cost 3.8 million euros upfront and 500,000 euros annually, according to CMA. They’re the most expensive and signal the highest probability of default among 75 companies in the Markit iTraxx Crossover Index, CMA prices show.
Europe’s third-largest newsprint and magazine paper producer’s revenue fell by more than 50 percent since 2008 as publishers moved content online. Norske Skog said in November it’s looking to refinance or issue more secured debt to deal with maturing obligations after disposing of non-core units and shutting capacity.
The oil slump could boost the competitiveness of Norske Skog relative to its peers, according to Gustav Liedgren, an analyst at Standard & Poor’s in Stockholm.
“A large part of their cost base is in Norwegian kroner, while revenues are mostly in euros and dollars,” Liedgren said. “In a tough market, this would improve their competitiveness, provide a great cushion to offset any negative development in paper prices and raise their chances to refinance the debt.”