Chatham Asset Management Sends Letter to Rayonier Advanced Materials Board of Directors Regarding Proposed Refinancing Transaction and Adoption of Stockholder Rights Plan
24 Março 2022 - 09:00AM
Business Wire
Again Urges Company to Engage with Chatham
and Address Upcoming Debt Maturities
Calls on Board to Rescind or Submit Poison
Pill for Stockholder Approval
Chatham Asset Management, LLC ("Chatham"), a private investment
firm which manages funds that beneficially own approximately 6.3%
of the outstanding common stock of Rayonier Advanced Materials
(“RYAM” or the “Company”) (NYSE: RYAM) and is a substantial
bondholder of the Company, today sent a letter to RYAM’s Board of
Directors (the “Board”) regarding its response to Chatham’s
proposed refinancing transaction and the Board’s adoption of an
entrenching stockholder rights plan.
In its letter, Chatham notes:
- Chatham sent a proposed term sheet to refinance the
Company’s 5.50% Senior Notes due June 1, 2024 (the “2024 Notes”)
at management’s suggestion.
- Chatham’s suggested terms for a refinancing would be
beneficial to all stockholders – not just Chatham.
- Chatham does not share the Company’s confidence that it will
be able to obtain refinancing for its 2024 Notes “at a time when
market conditions are more favorable.”
- Chatham believes the Company’s adoption of a stockholder
rights plan is a defensive maneuver to escape accountability rather
than a response to any threat made by Chatham.
- Chatham believes the adoption of this stockholder rights
plan demonstrates poor corporate governance.
“Rather than engage with Chatham in good faith or even respond
to our outreach directly, the Board instead rejected our proposed
refinancing term sheet – which was solely intended for discussion
purposes and sent to the Company at management’s suggestion – and
unilaterally adopted a poison pill. This behavior is entrenching
and should be deeply concerning to all stockholders. Moreover, the
Board has made numerous inaccurate statements about our proposal
and our investment in the Company. We call on RYAM’s Board to
constructively engage with us to de-risk the Company’s balance
sheet and maximize value for all stockholders,” said Chatham.
The full text of the letter follows:
March 24, 2022
Board of Directors Rayonier Advanced Materials 1301 Riverplace
Boulevard, Suite 2300 Jacksonville, FL 32207 Attention: Mr. De Lyle
Bloomquist, Chairman
Dear Members of the Board:
As you know, Chatham Asset Management, LLC (together with its
affiliates, “we” or “Chatham”) is a substantial stockholder and
bondholder of Rayonier Advanced Materials (“RYAM” or the
“Company”), beneficially owning approximately 6.3% of the Company’s
outstanding common stock, 74% of the Company’s 5.50% Senior Notes
due June 1, 2024 (the “2024 Notes”), and 13% of the Company’s
7.625% Senior Secured Notes due January 15, 2026 (the “2026
Notes”).
On March 17, 2022, we wrote an open letter to the independent
members of RYAM’s Board of Directors (the “Board”) to express our
serious concerns that management was not taking action quickly
enough to proactively address the Company’s upcoming debt
maturities. Rather than engage with us in good faith or even
respond to our outreach directly, the Board issued two press
releases littered with misinformation and announced the adoption of
a stockholder rights plan, or “poison pill”, that appears designed
to suppress any further discussions with us.
While our motivations with our open letter were to drive more
meaningful private engagement with the Board, we are now forced to
issue another public letter to address a number of the false and
misleading claims set forth in the Board’s recent press releases.
We note the following:
- Chatham sent a proposed term sheet to refinance the 2024
Notes at management’s suggestion.
Following several discussions with management in which we expressed
our views that the Company needed to act with more urgency to deal
with the upcoming maturity of its 2024 Notes before credit markets
tighten further, the Company’s Chief Financial Officer and
Treasurer suggested that Chatham send the Company a proposal for a
potential refinancing. Chatham then sent a proposed term sheet for
a refinancing on March 15, 2022, explicitly noting that such term
sheet was for discussion purposes only and that we welcomed further
discussions with both management and the Board. At no point did
Chatham suggest the proposed term sheet was a firm offer or the
only offer. As we clearly stated in our open letter to independent
directors, our focus is in moving with speed to address the 2024
Notes’ upcoming maturities, “whether it is [through] our suggested
term sheet or another transaction.” Any suggestion that
Chatham was trying to accomplish more than that is false. In
addition, no member of the Company’s management team or Board has
responded to Chatham to discuss any aspect of the detailed
indicative exchange offer we proposed. In fact, no member of the
management team or Board even acknowledged receipt of our proposal
until further prompted by Chatham.
- Our suggested terms for a refinancing would be beneficial to
all stockholders – not just Chatham. The term sheet we suggest
includes an offer for Chatham to sell approximately $35 million of
the 2024 Notes that we own back to the Company at a price
below par and at current trading
levels at the time. The rest of our $247 million position would be
rolled pursuant to a public exchange offer open to all other senior
noteholders on the same terms. We
therefore struggle to understand how the Board could or would claim
that Chatham stands to benefit significantly while such
transactions would be detrimental to the Company and its other
investors. In fact, in its recent response, neither management nor
the Board has made any attempt to explain why Chatham’s proposal or
an alternative solution to the Company’s maturity of the 2024 Notes
is not appropriate at this time or economically off-base given the
current market environment. Our proposal extends the Company’s next
significant maturity out to 2026 and provides the Company time to
execute on its capital expenditure and margin expansion initiatives
that it has recently outlined. Additionally, Chatham’s proposal
suggests using only $70 million of the Company’s balance sheet cash
to repay debt, consistent with the Company’s own publicly stated
goals of reducing its gross debt. This $70 million in cash would be
used to buy back $35 million of Chatham’s 2024 Notes below par and
$35 million of other 2024 Notes at the par call price in June 2022,
and represents less than 20% of the Company’s liquidity position as
of December 31, 2021. In combination with the Company’s expected
tax refunds in 2022, as well as the value of the Company’s equity
in GreenFirst Forest Products Inc. that is now unrestricted and
available to monetize, the Company’s assertion that an exchange
along the lines of what we suggest would result in the “use of a
significant portion of its cash” appears unfounded. Regardless, any
proposed transaction which would allow the Company to address a
contractual debt obligation with existing stakeholders and avoid
capital markets risk should be welcomed by the Board and given
appropriate consideration. As a significant equity holder, our
interests are aligned with all other stockholders. We believe
refinancing the 2024 Notes now would create equity value and
multiple expansion that ultimately enhances stockholder value for
all and most importantly reduces risk for the Company.
- We do not share the Company’s confidence that it will be
able to obtain refinancing for its 2024 Notes “at a time when
market conditions are more favorable.” All stockholders should
be deeply troubled that the Board is comfortable taking on
unnecessary risk in the hopes that credit markets will improve,
especially given market expectations for multiple interest rate
increases this year by the Federal Reserve. The Company seems
resigned to first fixing its operations and then addressing its
capital structure, but we believe the small chance of a minor
decrease in coupon rate does not warrant the larger risk to
stockholders of waiting and trying to refinance in a more
challenging credit market. In fact, the credit markets for RYAM
have already deteriorated as evidenced by the widening of CCC
spreads in the market year-to-date as well as the value of the
Company’s own debt securities. The yield on the JP Morgan high
yield index for CCC credits has widened 244 basis points since the
beginning of this year to 10.50%. Additionally, the 2026 Notes have
traded from a price of $106 (5.45% YTW) at the beginning of this
year to a price of $100 (7.625% YTW) today. Given a weakening
credit market and management’s forecast for a “challenging start to
the year” with “extraordinary inflation costs”, “supply chain
constraints” and “extensive maintenance outages,” we think
management’s confidence in obtaining more attractive financing in
the future is poorly reasoned at best.
- We believe the Company’s adoption of a stockholder rights
plan is a defensive maneuver to escape accountability rather than a
response to any threat made by Chatham. The Company claims it
adopted a stockholder rights plan to protect stockholders from
“rapid open-market purchases” and, in particular, “recent unusual
stock trading activity and the accumulation of a substantial
position in the Company by entities associated with Chatham”. Yet,
Chatham has been slowly accumulating shares of the Company’s common
stock since June 2021. Our position was not the result of any rapid
accumulation nor have we ever indicated any interest in
attempting a hostile takeover of the Company. In fact, Chatham
was restricted from accumulating any shares for a ten day period
that started on March 11, 2022 and ended March 21, 2022, the day
the Company announced the adoption of the poison pill. Looking at
the recent trading activity of the Company’s stock, there are two
recent days of heavier trading than usual - March 18, 2022, when
912,953 shares were traded and which was a day Chatham was
restricted from trading and therefore did not transact, and March
8, 2022, when more than 1.6 million shares were traded, but Chatham
purchased only 50,000 shares or 3% of the total shares traded. In
fact, over the last year, there have been 15 days where the volume
of RYAM stock traded has exceeded 1 million shares. Chatham only
transacted in RYAM equity on five of those days, our volume
averaged 3.6% of the total volume on those days and Chatham’s
volume never exceeded 50,000 shares per day. We note that despite
heavy trading in a two week period in May 2021 that exceeded recent
trading volumes (a period where Chatham did not even own the
stock), the Company’s management and Board made no mention of
considering a stockholder rights plan. In our view, the Board had
no justification for adopting the poison pill other than to chill
further discussion with us. We see no “recent unusual stock
trading activity” and any insinuation by the Board that Chatham
traded inappropriately in any way is patently false. Similarly, the
Board’s enactment of a “poison pill” based on these falsehoods is
also improper.
- We believe the adoption of this stockholder rights plan
demonstrates poor corporate governance. Without any clear
threat, we see the Board’s adoption of this poison pill as simply a
means to squash stockholder engagement and avoid real
accountability. We note that the Company has not disclosed any
intent in submitting the stockholder rights plan for stockholder
approval, despite having the opportunity to do so at its upcoming
annual meeting, which has been scheduled for May 16, 2022. Instead,
the Board unilaterally adopted a poison pill with a two-tier
trigger that sets a lower trigger of 10% for any investor who may
wish to take a more active role in protecting its investment or
group with other investors who may share similar concerns with the
Company’s performance or strategy. Further, the poison pill
includes, for purposes of the 10% trigger, “derivative contracts”,
including cash-settled derivatives, which do not carry either
voting rights or the right to influence how any shares are voted
and would not be diluted if the poison pill were triggered,
something courts have suggested could be unenforceable. In our
view, the Board has not acted in the best interest of stockholders
but seems to be acting in the best interest of management to avoid
engaging with a large stockholder who has raised legitimate
concerns about the Company’s approach to its capital
structure.
While we remain deeply troubled by the Board’s overreaction to
our efforts to de-risk the Company’s balance sheet, we remain
committed in our efforts to see the Company refinance the 2024
Notes as soon as possible. We call on the Board to scrutinize the
advice it was given from “multiple advisors” and disclose the names
of all Company advisors so that we may better understand their
views on our proposal and their thoughts on the refinancing market
for RYAM. We urge the Board and management to engage with us
directly and in good faith to protect and maximize stockholder
value.
Sincerely,
/s/ Anthony Melchiorre
Anthony Melchiorre Managing Member Chatham Asset Management
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