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Investing.com -- Moody’s Ratings has affirmed UPM-Kymmene’s Baa1 long-term issuer rating and senior unsecured ratings but changed the outlook to negative from stable, the rating agency announced Wednesday.
The change reflects deteriorating credit metrics at the paper and forest products company, driven by challenging market conditions in its pulp and graphic paper businesses. UPM’s Moody’s-adjusted gross leverage has remained above the 2x downgrade threshold since 2022, reaching 3.1x in Q3 2025.
The elevated leverage stems from large-scale investments made during 2021-2023, including pulp operations expansion in Uruguay and a new biochemicals business in Germany. These projects coincided with weakening market conditions across UPM’s business lines.
Moody’s had expected leverage to decline after these projects completed. Instead, a global drop in pulp prices, weakness in paper markets, and delayed start-up of the biochemicals refinery in Leuna, Germany have worsened the company’s financial position.
Despite capital spending falling below €500 million in the 12 months ended September 2025 (compared to an average of €1,350 million during 2021-2023), UPM’s free cash flow remains negative. This is partly due to continued high dividend distributions of €820 million, equivalent to about two-thirds of operating cash flow.
UPM’s net leverage increased to 2.4x in Q3 2025, exceeding the company’s self-imposed target of 2x without meaningful counter measures implemented.
The rating is supported by UPM’s large global footprint, market-leading positions across its diversified product portfolio, and historically conservative financial policies. However, it is constrained by exposure to the declining graphic paper business (about 25% of group sales), commodity-like nature of some growing businesses, and prolonged weak credit metrics.
Moody’s indicated that negative rating pressure could arise if gross debt to EBITDA remains above 2x, retained cash flow to debt stays below 30%, or EBITDA margin falls below 15%.
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