Fitch Ratings on Friday cut Mercer International Inc.'s Long-Term Issuer Default Rating to 'CCC-' from 'B-' and downgraded the issue ratings on the company's senior unsecured notes to 'CCC' from 'B-' while revising the Recovery Rating to 'RR3' from 'RR4'.
The ratings action reflects what Fitch describes as ongoing weakness in pulp and lumber markets that keeps Mercer’s leverage elevated - above 6.5x - through most of the agency's forecast horizon.
Fitch also highlighted a significant deterioration in Mercer’s liquidity since its prior review. The company reported approximately $85 million of cash at March 31, 2026. Mercer secured a waiver for the leverage covenant on its German revolving credit facility after breaching that covenant in the first quarter of 2026. Under the amendment tied to the waiver, borrowing availability was reduced, leaving total available liquidity of $229 million at March 31, 2026.
Against this backdrop, Fitch said Mercer’s capital structure is unsustainable under current market conditions. The ratings agency noted roughly $1.5 billion of total debt maturities coming due over the 2027-2029 period.
In response to the balance sheet pressure, Mercer has formed a special committee and retained restructuring advisers to evaluate potential options to address its liabilities. Fitch said it sees heightened potential for a near-term transaction that would meet the agency’s criteria for a distressed debt exchange. The company has taken steps to increase indenture flexibility, which Fitch interprets as preparatory to a potential restructuring transaction.
Fitch made clear that any exchange offering creditors diminished structural or economic terms to avoid a traditional payment default would be treated as a default under the agency's criteria.
On fundamentals, Fitch pointed to incremental northern bleached softwood kraft supply additions in China as a driver of downward pricing pressure for pulp, noting that underlying demand has remained relatively stable. The agency does not anticipate sufficient supply rationalization in the near term to meaningfully improve pricing and said it does not expect a meaningful market recovery until 2027 at the earliest.
Implications
The downgrade underscores heightened near-term credit risk for Mercer given constrained liquidity, large upcoming maturities and continued commodity-price pressure in pulp and lumber markets. Mercer’s engagement of restructuring advisers and adjustments to indentures are steps that Fitch views as consistent with preparing for a distressed debt exchange, which the agency considers a default if it reduces creditor terms.