Overview
Moody's Ratings lowered Mercer International Inc.'s corporate family rating to Caa3 from Caa1 and reduced the company's probability of default rating to Caa3-PD from Caa1-PD. Senior unsecured debt ratings were cut to Ca from Caa2. The Speculative Grade Liquidity Rating remains SGL-4 and the outlook attached to that liquidity assessment is stable.
Rationale for the downgrade
In explaining the action, Moody's pointed to the increasing likelihood that Mercer will be required to pursue a distressed exchange or otherwise restructure its balance sheet. The agency expects leverage to remain elevated, interest coverage to be weak and free cash flow to be negative as Mercer navigates higher fiber costs, continued weak pulp prices and reduced demand. Those conditions are assumed to persist at least through 2027.
Liquidity concerns were central to the downgrade. Moody's noted that Mercer has a limited runway as two of its revolving credit facilities are scheduled to expire in January and September 2027. The agency quantified Mercer’s liquidity sources at about $210 million against uses of roughly $294 million through December 2027.
Balance sheet and cash position
As of March 2026, Mercer reported approximately $85 million in cash and short-term investments and about $125 million of availability under its German revolving credit facility. Expected uses include roughly $200 million of free cash flow consumption through December 2027 as well as repayment of $94 million drawn on the company’s $113 million Canadian revolving credit facility.
Covenant and subsidiary issues
Moody's highlighted covenant pressure on the German credit facility. That facility currently benefits from a waiver on financial covenants through the fourth quarter of 2026. Moody's said it expects Mercer will fail the covenant if an extension of the waiver is not secured beyond that period, driven by increased borrowings and lower German EBITDA.
The agency also explained that the Ca ratings on Mercer’s senior unsecured notes reflect structural subordination to the Canadian revolving credit facility and other indebtedness and liabilities of operating subsidiaries. Those notes do not carry guarantees from operating subsidiaries.
Bottom line
Moody's downgrade signals heightened credit stress for Mercer driven by weak market conditions in pulp and fiber costs, ongoing demand softness and constrained liquidity through 2027. The company faces near-term covenant and refinancing risks tied to expiring credit facilities.