Reemphasizes Need for the Board to
Immediately Repay Debt and Refinance RYAM’s 2024 Senior
Notes
Chatham Asset Management, LLC, 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
reaffirming its intention to withhold its vote against two
long-tenured members of the Company’s Board of Directors, Thomas I.
Morgan and Lisa M. Palumbo, at the Company’s annual meeting of
shareholders on May 16, 2022.
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Yield: RYAM 7.625% Sr. Secured Notes due
2026, BofA CCC Index (Source: Bloomberg; Bank of America HY
Index)
The full text of the letter follows:
May 9, 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, 77% 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 April 13, 2022, we wrote an open letter to shareholders
detailing the reasons for why we intend to withhold our votes
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 (the
“Annual Meeting”). In that letter, we expressed our view that a
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 Annual Meeting. We also expressed serious concerns
with the Company’s strategy in waiting to address the refinancing
of the 2024 Notes in light of weakening credit markets and rising
interest rates.
Since issuing that letter, the following has occurred, which
further supports our decision to withhold our votes against Mr.
Morgan and Ms. Palumbo:
1. A leading proxy advisor firm, Institutional Shareholder
Services Inc. (“ISS”), is recommending that shareholders vote
AGAINST the Board’s Nominating and Corporate Governance
Committee chair, Lisa Palumbo, at the Annual Meeting for adopting a
short-term poison pill with a relatively low 10 percent trigger. In
making this recommendation, ISS noted:
“The adoption of a pill can lead to board entrenchment and deter
legitimate offers of acquisition,which can ultimately lead to lower
long-term shareholder value.”
“Given the potentially vital role a poison pill may have in
determining the future of a company, shareholders should
have the right to vote on the implementation of all new poison
pills, as well as any material changes to existing pills.”
“The company adopted the pill on March 21, 2022, eight weeks
before the 2022 annual meeting, and 11 days before filing its
definitive proxy statement.”
“[T]he company's share price is down approximately 28.4
percent since the adoption of the pill, closing at $6.79 on
March 21, 2022, and $4.86 on May 2, 2022. This is compared to an
approximate 7.1 percent decrease in the Russell 3000 over the same
time period. Therefore, given the relatively low 10 percent
ownership trigger, a vote against governance committee chair Lisa
Palumbo is warranted.”
2. Since we first publicly expressed on March 17, 2022, our
serious concerns that management was not acting quickly enough to
proactively repay its debt with available cash and address the
Company’s upcoming debt maturities, market conditions have
deteriorated and Federal interest rates have increased. In fact,
yields for CCC rated notes like RYAM’s notes, which are the
riskiest part of the junk bond market, have widened to 11.06% as of
April 30, 2022, from 9.72% when we first sent a proposed exchange
offer term sheet at the Company’s request (the “Proposed Term
Sheet”), and 6.45% when the Company closed on the sale of its
lumber and newsprint assets (the “Asset Sale”). At the same time,
yields on the Company’s 2026 Notes have similarly widened to 9.25%
versus 8.04% at the time of our Proposed Term Sheet and 5.56% at
the time of the Asset Sale.
See Yield: RYAM 7.625% Sr. Secured Notes due 2026, BofA CCC
Index chart
3. Since the second quarter of 2021, a period of strong
performance in the Company’s lumber business which it has since
divested, the Company has been carrying larger than normal amounts
of liquidity and cash. Over the last four quarters, the Company’s
liquidity position has averaged over $350 million, well above
historical levels despite the Asset Sale in August 2021. If the
Company had applied some of its cash to debt reduction and
maintained historical levels of liquidity, we estimate interest
savings of $8 million over the last twelve months. We estimate
these savings would be worth approximately $1 per share today,
an 18% premium to the Company’s current share price, based
on a 10x forward earnings multiple.
4. We note a recently failed deal in the U.S. junk bond primary
market this month, as the medical device company Bioventus pulled a
$415 million 5-year bond sale, citing poor market conditions
despite an indicated yield in the 10% range. In our view, the
markets will only get worse, not better, particularly for CCC-rated
notes, as Federal interest rates are projected to rise throughout
the year, making the Company’s strategy to wait, ill-advised.
While we recently had some engagement with management regarding
our concerns, new potential terms for a refinancing and further
debt reduction, we were disappointed to hear that the Company
continues to believe it can wait for both market conditions and the
Company’s operating performance to improve. We find this risk of
waiting to be a dangerous strategy further warranting our
WITHHOLD votes.
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 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.
In our view, a WITHHOLD vote against Thomas I. Morgan and
Lisa M. Palumbo, who have both served on the Board for eight years,
is warranted to send a strong and clear message that the Board
should not have defensively and unilaterally adopted a poison pill
and must act with speed to address its upcoming debt maturity.
Sincerely,
/s/ Anthony Melchiorre
Anthony Melchiorre Managing Member Chatham Asset Management
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Jonathan Gasthalter/Sam Fisher Gasthalter & Co. (212)
257-4170
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