AbitibiBowater to sell most of its Ontario hydroelectric assets

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This article was published 06/11/2008 (6540 days ago), so information in it may no longer be current.

MONTREAL – AbitibiBowater Inc. (TSX:ABH) says it hopes to sell the bulk of its hydroelectric assets in Ontario by early next year in an ongoing effort to reduce its debt load and improve operational profitability.

The Montreal-based forest products producer announced Monday it will receive $197.5 million, before expenses, for selling its interest in Ontario hydro-electric generating assets in a non-binding agreement with an unidentified buyer.

The buyer will also assume $250 million in term debt held by ACH Limited Partnership, which is owned 75 per cent by AbitibiBowater.

Chief executive David Paterson said the sale continues the company’s efforts to reduce its debt loads and restructure its operations to reduce costs.

“We look forward to continued de-leveraging progress as we implement additional measures to improve our free cash flow generation,” he said in a statement.

According to regulatory documents filed last month, AbitibiBowater has more than US$1 billion in debt or credit instruments that must be repaid or renewed by next September.

That includes a US$347-million term loan that matures in March, a credit facility that matures in June, a US$248-million bond issue that matures in August and a US$350-million accounts receivable securitization program that could expire in July if not renewed.

Ontario Natural Resources Minister Donna Cansfield said she had a discussion with Paterson about the decision Monday morning.

“He indicated to me that they are in some sort of discussions at this point. Nothing is finalized and he had nothing to put in front of me and probably wouldn’t until the new year,” she said in an interview.

AbitibiBowater formed ACH Limited Partnership in April 2007 to hold the Ontario hydro-electric generating assets of its subsidiary Abitibi-Consolidated Company of Canada.

The proposal announced Monday values the hydro assets, which have a combined capacity of 136.8 megawatts, at $540 million – assuming the deal is completed as anticipated.

The proposed sale of ACH Limited Partnership, subject to several conditions, is expected to close in the first quarter of 2009.

The proposal does not include the sale of the Iroquois Falls or Fort Frances, Ont., mills.

“Both of those mills have made a great effort of reducing their costs. The mills are competitive,” said company spokesman Seth Kursman.

“And we’re going to continue to look at investment opportunities to make sure they stay competitive.”

The paper and wood producer is separately embroiled in a battle with the government of Newfoundland and Labrador, which has expropriated AbitibiBowater’s hydroelectric assets, water and timber rights in the Grand Falls-Windsor area.

The N.L. legislature hastily passed the expropriation bill this month after the company said it was shutting down a century-old mill in the central Newfoundland region, with the loss of nearly 800 jobs.

Paterson sent a harshly-worded five-page letter to Newfoundland and Labrador Premier Danny Williams on Friday, threatening legal action under the North American Free Trade Agreement.

The expropriation was “clearly unequivocally” illegal under NAFTA and “shocks common sensibility,” he wrote.

Kursman said the company has not yet received a response from the province.

Paterson said in an interview Monday that a deal to sell one of its N.L. hydroelectric assets has been impacted by the province’s action.

“With our decision to close the Grand Falls mill, we anticipated a discussion about the various assets we own in the province and we’re still prepared,” Paterson told Business News Network, a specialty cable TV channel.

The company is now pursuing a two-track approach, attempting a negotiated agreement with the province and, if necessary, a challenge under Chapter 11 of the NAFTA, he said.

“The government has indicated that even under the bill that they would pay us for the hydro assets, which are dams and generating equipment that we built or our partners built. So we look forward to resolving (the dispute) but if we can’t resolve it in a fair way, then we’ll go the other route.”

The U.S. State Department said it is gathering information about the tensions between the province and AbitibiBowater, which is a Delaware-registered company, but headquartered in Montreal.

“At the moment we don’t have all the facts,” said department spokeswoman Julie Reside.

“Needless to say we’re concerned that the actions could negatively affect Canada’s investment climate. We need to watch to make sure the interests of U.S.-based companies are protected.”

AbitibiBowater also said Monday it is re-affirming its guidance for significant financial improvements in the fourth quarter.

The company said it expects its fourth-quarter operating income, excluding gains on asset sales, impairments and mill closure and other related charges, to be in the range of $65 million to $95 million compared to a $9 million loss for the third quarter of 2008.

AbitibiBowater shares closed Monday at 66 cents, up 13 cents or 24.5 per cent, from Friday’s close but down from a 52-week high of $26.06 set nearly a year ago.