Intends on Withholding Vote Against
Directors Thomas I. Morgan and Lisa M. Palumbo at Annual
Meeting
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 issued an open letter to RYAM
shareholders stating Chatham’s intent to withhold its vote against
two long-tenured members of the Company’s Board of Directors (the
“Board”), Thomas I. Morgan and Lisa M. Palumbo, at the Company’s
annual meeting of shareholders on May 16, 2022.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20220410005054/en/
Shareholder Returns (Source: Bloomberg;
Data as of April 12, 2022)
“Despite RYAM’s persistent poor stock price and financial
performance, the Board has insulated itself from stockholder
engagement while doling out generous compensation packages to
management. We are left with no choice but to withhold our vote
against Mr. Morgan and Ms. Palumbo at the Company’s upcoming annual
meeting in an effort to instill accountability and protect
shareholder value,” said Chatham.
The full text of the letter follows:
April 13, 2022
Dear Fellow Shareholders:
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, 75% 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”).
Last month, 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 acting quickly enough to
proactively address the Company’s upcoming debt maturities. Rather
than address our concerns or the Company’s persistent poor stock
price and financial performance, the Board unilaterally adopted an
onerous stockholder rights plan, or “poison pill”, essentially
claiming it needed to protect stockholders from Chatham. We believe
what shareholders really need is a refreshed Board, with new
directors added that possess capital allocation, strategic and
corporate governance expertise to better address the Company’s
long-term underperformance. Accordingly, we intend to withhold our
vote against two long-tenured directors up for election this year,
Thomas I. Morgan and Lisa M. Palumbo, who, if they fail to receive
a majority of the votes cast, will be required to tender their
resignations to the Board under the Company’s Corporate Governance
Principles.
As further discussed below, we believe our withhold vote against
Mr. Morgan and Ms. Palumbo is warranted, not only to show that this
Board must be held accountable for years of shareholder value
destruction, but also for their incredible entrenchment maneuver in
adopting a poison pill without shareholder approval, despite having
the ability to allow shareholders to vote on it at the Company’s
upcoming annual meeting of shareholders scheduled to be held on May
16, 2022.
RYAM’s total shareholder returns (TSR) are poor.
RYAM’s stock has consistently underperformed over one, three and
five year periods compared to relevant indices.
See Shareholder Returns chart
Source: Bloomberg; Data as of April 12, 2022
Despite selling its lumber and newsprint assets on August 30,
2021, the proceeds of which the Company disclosed would be used to
repay debt and make strategic capital investments focused on its
high purity cellulose segment, management and the Board have failed
to discuss any specifics on their plan to address RYAM’s upcoming
debt maturities. It is therefore unsurprising, although deeply
disappointing, that the Company’s stock price has declined
approximately 21% since these assets were sold, with the stock
recently closing at $5.41 per share on April 12, 2022.
The Company’s financial performance is even worse.
Following the sale of the Company’s lumber and newsprint assets,
the primary driver of the Company’s EBITDA going forward will
likely be its high purity cellulose business. While we believe this
business could have considerable value, the Company continues to
underperform in this critical business segment. The Company’s high
purity cellulose business has declined from an over $200 million
EBITDA business with EBITDA margins in the 20% range in fiscal 2017
to reporting $139 million of EBITDA in fiscal 2021, with an EBITDA
margin of 12.7%. While the demand and pricing environment remains
solid, management does not appear capable of capitalizing on this
opportunity, which we suspect is due in part to the Company’s
inefficient operations and inability to maximize volumes when
pricing is favorable.
Recently, management has announced significant capital
expenditures to try to expand EBITDA margins and has decided to
take plants offline in the first half of fiscal 2022 to make these
improvements. As a result, the Company’s performance in at least
the next two quarters is expected to be weak. However, there is no
guarantee these capital expenditures will improve the Company’s
financial performance, particularly at a time when the Company,
like all companies, is facing an “extraordinary inflationary
environment” compounded with “supply chain constraints”.1
At the same time, the Company’s net debt and leverage ratios are
expected to increase over the next several quarters, as shown
below, raising greater concerns from us that by the time this
Company begins to pay attention to refinancing its 2024 Notes, it
may be too late.
See Leverage Trend chart
Source: Company SEC filings; Consensus EBITDA estimates as shown
on Bloomberg; Interest and Capex estimated based on Company SEC
filings
It appears the Company is an outlier in not addressing its
upcoming debt maturities.
When the Company entered into a new five-year senior secured
asset-based revolving credit agreement (“ABL”) and completed its
offering of the 2026 Notes in December 2020, the concept of
“springing maturities” were included in both the ABL and indenture
governing the 2026 Notes. The net effect of these “springing
maturities” is that the ABL and 2026 Notes will come due 121 days
and 91 days, respectively, before the maturity of the 2024 Notes,
unless nearly all of the 2024 Notes are refinanced by those dates.
Given this potential calamity, we would think that a proactive
Board would be racing to refinancing its 2024 Notes, particularly
as the credit markets begin to tighten. Instead, management and the
Board have refused to engage with Chatham to discuss any of the
specifics of Chatham’s refinancing proposal or provide feedback on
the Company’s plan to address its balance sheet.
We note that when we look at the Bank of America U.S. Cash Pay
High Yield Index, just 4.8% of the 2,038 bonds in that index mature
on or before June 1, 2024, when the 2024 Notes mature, and only 14
bonds in that index, or less than 1%, that are rated CCC, like
RYAM, still have maturities on or before June 1, 2024.
Additionally, the yield on the 2026 Notes has increased from 5.56%
to 8.05% since the sale of the Company’s lumber and newsprint
assets, which suggests to us that the market views RYAM as a
deteriorating credit.
Accordingly, despite what management or the Board publicly
claim, we do not believe they are prudently managing the Company’s
balance sheet, and each day they delay the refinancing of the 2024
Notes, the more unnecessary risk we see to the Company and its
shareholders.
We have concerns that management’s compensation is not
properly aligned with performance.
The below chart details the compensation for the Company’s top
four executives over the past three fiscal years. Despite the
Company’s stock declining 46.4%, and significantly underperforming
relevant indices, these four individuals received total
compensation of $27.4 million from 2019 to 2021.
Year Ended
Year Ended
Year Ended
Years
2019
2020
2021
2019-2021
Paul G. Boynton (CEO)
$7,348,393
$5,579,824
$5,665,507
$18,593,724
Marcus J. Moeltner (CFO)
$703,397
$903,958
$1,469,548
$3,076,903
William R. Manzer (EVP Manufacturing)
$1,096,183
$852,909
$1,261,625
$3,210,717
James L. Posze, Jr. (CAO)
$851,788
$717,621
$1,023,328
$2,592,737
Total Compensation
$9,999,761
$8,054,312
$9,420,008
$27,474,081
Mgmt Average
$2,499,940
$2,013,578
$2,355,002
$6,868,520
Shareholder Return
-63.94%
69.79%
-12.42%
-46.38%
Source: Company SEC filings
In our view, this lack of alignment may be a significant reason
as to why the Board’s first response to our initial public letter
was to adopt a poison pill and seemingly try to malign our
reputation rather than engage in any meaningful dialogue regarding
our concerns.
The Company’s adoption of a stockholder rights plan without
facing any credible threat of takeover or putting it to a
stockholder vote, further warrants a withhold vote against two
long-tenured directors up for election this year.
Since adopting the poison pill on March 21, 2022, we have tried
to engage with the Company to address the Company’s false narrative
that somehow Chatham was engaged in “unusual stock trading
activity.” That assertion is patently false and warrants
immediate correction. Yet the Company seemed to want to
escalate the situation by refusing to correct the public
record. Given the lack of retraction by the Company, Chatham
was forced to protect itself by filing a lawsuit applying for
injunctive relief to order the Company to remove the defamatory
reference to Chatham that it somehow improperly traded in the
stock. See Chatham Asset Mgmt. LLC, et al. v. Rayonier
Advanced Materials, Docket No. MRS-C-000050-22 (N.J. Ch.). It
was only in the course of that litigation that the Company
clarified publicly when responding to Chatham’s application that
its press release should be read naturally to note all recent
trading activity in RYAM stock, not just Chatham’s. While the court
denied Chatham’s application for a temporary restraining order, the
Court proceeded to schedule a hearing on a preliminary injunction.
Chatham nonetheless voluntarily dismissed the lawsuit on April
12.
Equally important is the terrible precedent of companies
adopting poison pills in advance of an annual meeting of
shareholders and not submitting the plan for a shareholder vote. We
feel this conduct is the epitome of poor corporate governance. If
the Company felt it was acting in the best interest of shareholders
in adopting the poison pill, it should have no reservations about
putting it to a vote at the upcoming 2022 annual meeting of
shareholders.
According to the Company’s Corporate Governance Principles, if
any director fails to receive the affirmative vote of a majority of
the votes cast with regard to his or her election, then such
director must tender his or her resignation to the Board. The
Board’s Nominating and Corporate Governance Committee (the
“Nominating Committee”) would then consider such resignation and
make a recommendation to the Board as to whether to accept or
decline the resignation. The Board would then make a determination
and publicly disclose its decision and rationale within 90 days
after receipt of the tendered resignation.
At the 2022 annual meeting of shareholders, three directors are
up for election, two of whom have served on the Board for eight
years: Thomas I. Morgan and Lisa M. Palumbo. Mr. Morgan serves on
both the Compensation and Management Committee and Nominating
Committee, while Ms. Palumbo serves as Chair of the Nominating
Committee. We note further that six of the ten members of the Board
have served together since 2015 and have presided over the
Company’s poor performance and questionable compensation packages.
Clearly this Board needs a shakeup.
Accordingly, for the reasons set forth above, we intend on
withholding our vote against Thomas I. Morgan and Lisa M. Palumbo
who are up for election at the 2022 annual meeting of shareholders
so that this Board may finally be held accountable for years of
shareholder value destruction.
Sincerely,
/s/ Anthony Melchiorre
Anthony Melchiorre Managing Member Chatham Asset Management
1 RYAM Q4 2021 Earnings release dated 2/23/22
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220410005054/en/
Jonathan Gasthalter/Sam Fisher Gasthalter & Co. (212)
257-4170
Rayonier Advanced Materi... (NYSE:RYAM)
Gráfico Histórico do Ativo
De Mar 2024 até Abr 2024
Rayonier Advanced Materi... (NYSE:RYAM)
Gráfico Histórico do Ativo
De Abr 2023 até Abr 2024