NEW YORK (TheStreet) -- Shares of Verso Paper Corp. (VRS) are plunging, down -8.54% to $1.82, after it had been reported late Friday that the coated paper manufacturer's second-lien debt dropped to the lowest level in six months as Moody's Investors Service cut ratings three grades to reflect "very high credit risk," according to Bloomberg.
The $396 million of 8.75% securities due 2019 fell 1.25 cents to 40.5 cents on the dollar to yield 36.2% at 2:17 p.m. in New York, the lowest closing level since December 20, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority, Bloomberg noted.
Moody's reduced the company's rating today to Caa3 from B3 and expects a distressed exchange or a bankruptcy filing if Verso is unable to close on its $1.4 billion deal to buy paper company NewPage Holdings Inc., according to a statement from the credit grader.
TheStreet Ratings team rates VERSO PAPER CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate VERSO PAPER CORP (VRS) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Paper & Forest Products industry. The net income has significantly decreased by 136.1% when compared to the same quarter one year ago, falling from -$38.38 million to -$90.61 million.
- Net operating cash flow has decreased to -$96.28 million or 15.65% when compared to the same quarter last year. Despite a decrease in cash flow of 15.65%, VERSO PAPER CORP is in line with the industry average cash flow growth rate of -15.72%.
- VRS, with its decline in revenue, slightly underperformed the industry average of 7.1%. Since the same quarter one year prior, revenues fell by 10.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- VERSO PAPER CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, VERSO PAPER CORP continued to lose money by earning -$2.09 versus -$3.29 in the prior year.
- Compared to its closing price of one year ago, VRS's share price has jumped by 66.37%, exceeding the performance of the broader market during that same time frame. Regarding the future course of this stock, we feel that the risks involved in investing in VRS do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
- You can view the full analysis from the report here: VRS Ratings Report