Pro-Gest debt plummets on paper production cut

2 min read
Ed Clark

Italian cardboard and paper firm Pro-Gest is one of the first euro high-yield manufacturers to stop production due to the rising cost of energy, ceasing activity at six of its factories in Italy, sending the borrower’s bonds tumbling.

The company’s outstanding debt has taken a beating over recent weeks. Since Friday’s close, its €250m 3.25% December 2024s have dropped 1.5 points, now bid at 89.675 on Tradeweb. They opened at 95 at the start of February.

According to an investor, analysts and local press, the company said on Monday that it was stopping all paper production at its mills in Italy because the soaring price of energy, triggered by Russia’s invasion of Ukraine, has eradicated its profit margin.

This could be the start of a trend in Europe’s high-yield market, where some issuers are particularly exposed to the increasing cost of energy.

“This I think is actually going to be the big story for high-yield,” said one portfolio manager. “It will focus on which names are exposed to rising energy costs and more generally increasing input costs. It is going to have a big impact.”

The company which currently sells a tonne of paper at a price of €680, has been hard hit by the 10x year-on-year rise in the price of natural gas leading to energy costs per tonne of €750 of paper.

“Pro-Gest is likely one of the first companies to suspend production in Europe due to higher energy costs, given that it has not hedged its exposure to gas prices,” said Peter Low, a credit analyst at the research firm Lucror Analytics, which has revised its ‘credit bias’ for Pro-Gest to negative, from positive, and their recommendation to sell, from hold.

“We note that a production suspension would materially affect the company, given that the paper mill segment accounted for c. 43% of 9M/21 sales.”

The company is still operating is packaging plants. Pro-Gest did not respond to a request for comment.