PACKAGING specialist Smurfit Kappa is set to refinance part of its €3 billion debt through a bond issue that will raise €500 million.

Smurfit, Europe’s largest containerboard maker, said that in the first nine months of the year, operating profits fell 40 per cent to €266 million from €443 million during the same period in 2008.

At the same time, revenues dropped by 17 per cent to €4.5 billion from €5.4 billion. Smurfit said that when acquisitions and currency translation were taken into account, sales were down €748 million, or 14 per cent.

The group said that its subsidiary, Smurfit Kappa Acquisitions, will borrow €500 million through the issue of senior notes – bonds – in a private placement.

It will use the cash raised to pay off part of three outstanding term loans which date back to November 2005, when it borrowed €2.93 billion to pay for the merger of Irish player Smurfit and Dutch business Kappa, to form the publicly quoted group.

The new bonds will be repayable over eight years or more. This means that the earliest date at which Smurfit will have to repay any material element of its €3 billion debt will be December 2013.

It was due to begin paying off the money it borrowed in 2005 between 2012 and 2014. However, it renegotiated the terms of its debts last July.

As a result, it extended the maturity of debts due in 2012 by one year. The new agreement also allows it to issue secured bonds worth up to a total of €1 billion, and repayable over longer periods of time than its current debts, to repay existing lenders.

An interim statement issued by the group said that the bond issue announced yesterday was in the context of that agreement.

It also pointed out that Smurfit Kappa had €668 million in cash on its balance sheet at the end of September. It also has the facility to borrow up €525 million from its banks, but has not drawn down any of this. The group reduced net debt by €158 million to €3.03 billion over the first nine months of the year.

According to yesterday’s interim statement, earnings before interest, tax, depreciation and amortisation (ebitda) of €555 million was €190 million, or 26 per cent, lower than in the comparable period last year. Free cash flow was down €83 million to €143 million.

The company said it successfully increased its ebitda margins from a low of 11.9 per cent in the first quarter to 12.7 per cent in the third quarter. During the third quarter of 2009, revenues were down 14 per cent to €1.5 billion. However, the company said that once allowance was made for the negative impact of currency of €45 million and net disposals and closures of €8 million, revenue shows an underlying decrease of €185 million, the equivalent of approximately 11 per cent.

Trading profits declined 27 per cent to €96 million during the three-month period ending September 30th. Third quarter ebtida was down 17 per cent or €39 million to €192 million. The underlying ebitda decrease was €34 million, the equivalent of 15 per cent.

Compared to the second quarter of 2009, ebitda was €8 million higher.