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.
/s/ Anthony Melchiorre
Chatham Asset Management
Jonathan Gasthalter/Sam Fisher
Gasthalter & Co.