Pulp Fiction: The Mercer International ($MERC) Credit Story
They make pulp. They burn cash. They say it's getting better.
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Mercer International is chipping away at debt in what has to be one of the most BORING industries ever. Pulp and lumber—we’re talking about trees, folks. You’d think a company that literally grows its raw materials would be a stable investment.
Yet the whole sector operates like some bizarre Wall Street fever dream—unstable prices, margin-crushing maintenance windows, and more debt than Elon’s Twitter buyout. The pulp market can swing 30-40% in mere months while fixed costs remain stubbornly high.
Management is committed to chipping away at their debt mountain, and showing real progress—net leverage improved to 5.2x from a terrifying 8.0x+ in just six months. But they’re doing this while navigating the insanely volatile world of pulp pricing, where one unplanned shutdown can derail an entire quarter.
The bond market isn’t buying the turnaround story yet. Mercer’s debt trades suspiciously wide vs. other single-B credits despite the improvements. Meanwhile, the company’s mass timber business waits in the wings, promising growth that’s held hostage by high interest rates.
The question isn’t whether Mercer can reduce debt in good times—it’s whether their balance sheet can withstand the inevitable storm when it comes.
And in this business, the forecast always calls for rain...