Columbia River Pulp Company Inc
Columbia River Pulp Company Inc. - Interest Rate Hedging Strategy
Executive Summary
Columbia River Pulp Company (CRP) owned and operated a world class kraft market pulp mill in Longview, Washington. The mill began production in 1980, after a two year construction period, and had a rated annual capacity of 385.000 metrics tonnes of bleached hardwood and softwood pulp. CRP sold their output on the open market, to paper products manufacturers in the Unites States, Mexico, Europe, and Japan.
CRP received refinanced approval of its long term debt from Toronto – Dominion Bank (TD Bank) amounting to $200 million based on floating rate. The floating interest rate represents the significant risk that needs to be mitigated through hedging products. There were some hedging products that TD Bank offered to CRP, swaps, caps, or collars, or some combination? There were definite trade-offs between these hedging products in terms of flexibility, interest rate protection, and true cost.
Andrew Tharle, Chairman of CRP, had to decide on the amounts and maturities of the various transaction hedging offered.
Issue Business
Kraft Market pulp is a truly global commodity, which prices changing quickly in response to capacity changes, inventory levels, and purchase levels. While market pulp is produced in about 25 countries, historically more than two-thirds of world output has come from five northern countries : the United States, Canada, Sweden, Finland, and Norway. One major change in the global pulp market was the mid – 1990s launch of pulp futures markets . While these markets were not an immediate success, there was enough trading volume to sustain at least market, the Pulpex/Finish Options Exchange. It was hoped that futures markets, widely used to trade futures in commodity products – such as copper, aluminium, sugar, and coffee – would bring more price stability to the pulp market and even out some of the extreme price fluctuations that have plagued the global market
Executive Summary
Columbia River Pulp Company (CRP) owned and operated a world class kraft market pulp mill in Longview, Washington. The mill began production in 1980, after a two year construction period, and had a rated annual capacity of 385.000 metrics tonnes of bleached hardwood and softwood pulp. CRP sold their output on the open market, to paper products manufacturers in the Unites States, Mexico, Europe, and Japan.
CRP received refinanced approval of its long term debt from Toronto – Dominion Bank (TD Bank) amounting to $200 million based on floating rate. The floating interest rate represents the significant risk that needs to be mitigated through hedging products. There were some hedging products that TD Bank offered to CRP, swaps, caps, or collars, or some combination? There were definite trade-offs between these hedging products in terms of flexibility, interest rate protection, and true cost.
Andrew Tharle, Chairman of CRP, had to decide on the amounts and maturities of the various transaction hedging offered.
Issue Business
Kraft Market pulp is a truly global commodity, which prices changing quickly in response to capacity changes, inventory levels, and purchase levels. While market pulp is produced in about 25 countries, historically more than two-thirds of world output has come from five northern countries : the United States, Canada, Sweden, Finland, and Norway. One major change in the global pulp market was the mid – 1990s launch of pulp futures markets . While these markets were not an immediate success, there was enough trading volume to sustain at least market, the Pulpex/Finish Options Exchange. It was hoped that futures markets, widely used to trade futures in commodity products – such as copper, aluminium, sugar, and coffee – would bring more price stability to the pulp market and even out some of the extreme price fluctuations that have plagued the global market