Pulp and paper asset sales and debt service

On Monday, I tried to connect some dots from the newspaper industry to those companies that provide publishers with newsprint. Both industries are facing severe distress due to a combination of sectoral declines and cyclic economic woes. I brought up AbitibiBowater (NYSE:ABH) as a good example of what’s happening in the paper industry, where high debt levels and a falling bottom line is creating havoc with company balance sheets.

ABH shares are trading well below a dollar, its market cap is a scant $36 million, and its debt issues trade at some of the greatest discounts on the market. To make matters worse, it has maturities facing it in the spring and summer on a significant portion of that debt.

The company claims to have business assets that could cover the maturing debt, but really, how quickly can these assets be sold? And given that pulp and paper operating assets don’t represent the most liquid market in the world, how much can these assets reasonable fetch on the market?

Today, a Canadian website posted an interesting short piece on such assets in Mackenzie, British Columbia.

The interesting part concerns the no-compete clauses tied to these assets, as alluded to by Canadian Minister quoted in the article.

I can’t imagine that such clauses help to facilitate quick sales. All signs point to ABH being under tremendous financial pressure, but these no-compete clauses attached to operating assets could complicate assets sales needed to pay off bondholders, whom I’m sure would be very interested in why the company would make such a demand upon potential buyers. As will the bankruptcy judge, if it gets that point.