Newsprint Market

Yesterday I noted how a government program is depressing the newsprint market. But wait, there’s more.

Abitibi-Bowater is the largest maker of newsprint in the world. They also happen to be in bankruptcy. In 2007 the two paper behemoths joined forces and dominated their industry. After a host of sales and spin-offs, slumping demand and weak prices left the company unable to service its debt. So it sought to negotiate swap with its lenders.

Here’s where it gets interesting. Negotiations are pretty standard when conditions change. Often the existing shareholders usually get diluted and the lenders control the company. Not a great situation, but avoiding court is usually faster and cheaper.

But not this time. Many lenders have purchased default protection on Abitibi. So someone else will make good on Abitibi’s debt if they have to file for bankruptcy. This makes some sense, but now the lenders have no incentive to keep them out of court. Shoot, it’s in their interest to give them a push, where the big winners are often the lawyers.

So we have a government program and credit derivatives combining to push an industry giant into bankruptcy. Can we just call for a do-over?

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350 • •
By |2014-09-04T18:02:51+00:00April 21st, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment