OREANDA-NEWS. S&P Global Ratings said today that it revised its recovery rating on Boise, Idaho-based wood manufacturer Boise Cascade Co.'s senior unsecured notes to '4' from '3'. The '4' recovery rating indicates average (30% to 50%; at the higher end of the range) recovery in the event of a payment default. The corporate credit rating, issue-level rating, and stable rating outlook on the company are unchanged.

On Aug. 16, 2016, we rated Boise Cascade's debt with the expectation that the company would issue $300 million of senior unsecured notes. The company revised the transaction and issued $350 million. The additional $50 million of debt issuance affects the recovery prospects of senior unsecured note holders.

RECOVERY ANALYSIS

Key analytical factorsSince our last published recovery analysis, we have revised the reorganization value of the company to $525 million. The increase in valuation reflects generally improved operating conditions and recent acquisitions. The increase in valuation is somewhat offset by the $75 million term loan the company issued in March 2016. The term loan is a senior claim to the rated unsecured notes and decreases the amount available to senior unsecured note holders. The issue-level rating on the company's senior unsecured notes remains 'BB-' (same as the corporate credit rating). We revised the recovery rating on the unsecured notes to '4' from '3.' The '4' recovery rating indicates our expectation of average (30% to 50%, higher end of range) recovery in the event of payment default. Our simulated default scenario contemplates a default stemming from a steep decline in home construction activity and demand for Boise Cascade's wood products, along with more intense competition. We assume that, over time, these conditions would strain the company's available liquidity, as it would have to fund operating losses and debt service with cash on hand and credit facility borrowings. Against this backdrop, the company would reach a point in 2020 where it would have to file Chapter 11.Simulated default assumptionsYear of default: 2020EBITDA at emergence: $105 millionImplied enterprise value (EV) multiple: 5Gross EV: $525 millionSimplified waterfall:Estimated stressed valuation (after 5% administrative costs): $499 millionPriority claims: $339 million*Remaining value to cover senior secured claims: $160 millionEstimated senior secured claims: $359 million*--Recovery expectations: 45%--Senior unsecured notes recovery rating: '4' (30% to 50%; at the higher end of the range)*Includes six months of accrued but unpaid interest.