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Investing.com -- Rayonier Inc (NYSE:RYN). has agreed to sell its 77% stake in a New Zealand joint venture (JV) to a special purpose vehicle created by Ents L.P., a fund managed by The Rohatyn Group. The deal, worth approximately $710 million, will diminish Rayonier’s scale and geographic diversity, but will streamline the company into a U.S.-focused timber REIT (Real Estate Investment Trust).
S&P Global Ratings has placed its ratings of Rayonier Inc. on CreditWatch with positive implications, expecting the company to use at least half of the sale proceeds to reduce debt and return capital to shareholders. The transaction is expected to significantly lower leverage, with a part of the proceeds likely to be used for debt repayment post-transaction, anticipated to occur in 2025.
Rayonier’s leverage is expected to improve substantially after the New Zealand JV transaction concludes, along with other large dispositions that closed in the fourth quarter. As of December 31, 2024, the company’s debt to EBITDA, as adjusted by S&P Global Ratings, was 3.2x, compared to 4.3x the previous year. This improvement is largely due to debt reduction related to dispositions totaling approximately $737 million since November 1, 2023, including $495 million closed in the fourth quarter of 2024.
Once the New Zealand transaction closes, the company will have completed $1.45 billion in dispositions, significantly surpassing its initial target of $1 billion set in November 2023. Supported by its disposition plan, Rayonier has announced a reduction in its leverage target to net debt to adjusted EBITDA equal to or less than 3.0x, down from the previous target of 4.5x or lower.
Pro forma for the transaction, the company expects its net debt to adjusted EBITDA to decrease to roughly 0.3x, before considering the impact of any special dividends or other use of proceeds. Rayonier is expected to use at least half of the proceeds to reduce debt and return capital to shareholders, with the remaining funds used to opportunistically fund capital allocation alternatives, including potential reinvestment in synergistic acquisitions.
Despite the New Zealand JV sale resulting in a smaller and less geographically diversified portfolio, S&P Global Ratings views the transaction as relatively neutral to Rayonier’s business risk profile. The sale allows Rayonier to become a pure-play, U.S.-focused timberland company, reducing exposure to log export markets, focusing on core markets with higher margins and more favorable long-term growth prospects, and simplifying the overall portfolio.
However, the portfolio sale will reduce Rayonier’s EBITDA base by approximately 18%, which S&P Global Ratings believes balances out the positive business impacts of the sale. The CreditWatch placement on Rayonier is expected to be resolved when the transaction closes, likely later in 2025. At that time, S&P Global Ratings would likely raise the ratings by one notch if the company is expected to maintain debt to EBITDA well below 3x throughout a full cycle. If the transaction does not close, the company would be reassessed, and the ratings are most likely to be affirmed.
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