Liquidity Tightens In Tandem With Sustained Pulp Slump And Cost Inflation

Research evidence excerpt

Liquidity Tightens In Tandem With Sustained Pulp Slump And Cost Inflation

TD Cowen Mercer International Inc.

Global Research May 11, 2026

AT A GLANCE

Our Investment Thesis Forthcoming Catalysts

In our view, MERC's high leverage and unclear path towards lowering debt yield a relatively ■ Revolver maturity in 2027

high-risk profile for the company. We are encouraged that management is focused on reducing ■ Note maturities in 2028 and 2029

the debt load. Depressed pulp and lumber markets are challenging MERC's liquidity. We ■ Potential asset sales to expedite

forecast a gradual earnings recovery over our forecast horizon. In our view, the equity is deleveraging

overvalued based on normalized earnings potential. We are comfortable with our SELL rating, ■ Gradual decline in global pulp stocks

given high leverage and a heightened risk backdrop. leading prices higher

■ $100mm cost savings run-rate by end of

2026 vs. 2024 baseline

Base Case Assumptions Upside Scenario Downside Scenario

■ Below-trend consolidated EBITDA through ■ Chinese pulp demand is more robust than ■ Unexpected fibre (pulpwood and saw log)

2027 anticipated cost inflation

■ Gradual improvement for global pulp ■ Unexpected pulp industry supply ■ Extended global economic recovery,

prices premised on stable demand and constraints particularly in Europe and China

constrained supply ■ Interest rate relief is more pronounced ■ Interest rates stay at elevated levels

■ Gradual interest rate relief starting than expected, yielding a quicker-than- longer than anticipated, crimping solid

supporting better wood product markets expected wood markets recovery wood product demand

■ Mass timber adoption proceeds at a ■ Growth of the mass timber business