Two Spokane-area companies bit by the historic squeeze in capital markets each separately has been able to take actions in recent months that might signal a modest easing in the nation's financial crisis.

Though their circumstances were different, both Coeur d'Alene-based Hecla Mining Co. and Spokane-based Clearwater Paper Corp. faced challenges in financing big corporate moves as the financial markets began to unravel late last year. Hecla had big debts coming due in connection with its purchase of full interest in the Greens Creek mine in Alaska in 2008, and Clearwater Paper was looking to finance its spin-off from Spokane-based Potlatch Corp.

Both were victims of unfortunate timing.

"Six months ago, the bank market was shut, the high-yield market was shut, and equity markets were diminished," says John Borer, a New York-based analyst with Rodman & Renshaw LLC, which follows Hecla. "The bank market is still as tight as a drum."

Since then, though, Hecla has been able to pay down most of the $380 million debt it incurred buying out its joint-venture partner in Greens Creek, following several months of bank negotiations and two stock offerings. Clearwater Paper, meanwhile, was able to float $150 million in notes—six months earlier than its deadline—to pay off its share of Potlatch's debt, following a scramble last fall to keep the spin-off alive amidst the financial crisis.

Although observers say the moves aren't definitive signs of market improvements, they add that such actions likely couldn't have taken place six months ago. Here are their stories.

Last October, seeing the economy begin to tank, Hecla sought to save cash by pushing to February the maturity date on a bridge loan taken out to buy Greens Creek. At that point, Hecla still owed about $40 million on a $240 million bridge loan, and another about $122 million on a related term loan.

Two months later, when an $18.3 million payment was due on its term loan, Hecla again turned to its lenders to postpone the payment, again to February. In return, Hecla agreed to pay higher interest and to put additional assets up as security.

Said Hecla President and CEO Phillips S. Baker Jr. at the time, " moving the date of the next principal payment gives us time to concentrate on cutting our costs, to modify the loan agreement, and to look at other forms of additional financing."

The credit market didn't thaw much with the new year, however, so Hecla renegotiated with its lender again, this time postponing into 2010 and 2011 the payments that had been scheduled for 2009 on its term loan, but agreeing to raise capital in other ways to pay off the remaining $40 million owed on its bridge loan.

Meanwhile, metals prices began to improve, giving Hecla the leverage it needed to raise capital through a stock offering. It did so in February, raising net proceeds of about $71 million, $40 million of which it used to pay off the bridge loan. The company raised another about $60 million in June, a portion of which it used to pay down its term debt.

Last month, Hecla announced a prepayment of $18.2 million on that loan, in conjunction with a loan amendment that reduced its lending syndicate to two institutions, further cut its borrowing costs, and eased loan covenants that gave Hecla greater flexibility in its capital program, including one requiring the company to retain a chief restructuring officer.

Today, Hecla's term debt is down to $38 million, says company spokesman Don Poirer.

"With the more robust equity market conditions, we felt we could take some cash off our balance sheet and make a prepayment," said Poirier last week.

Poirier says investor sentiment or interest in precious metals has changed significantly since last fall. Investor confidence began increasing some in mid-January, and investors began to gravitate toward precious metals.

"The outlook for precious metals started looking quite positive," he says, adding that although equity market conditions have improved, "for us, more so, metal prices improved."

"That's given us more confidence, and we're generating more cash," Poirier says. "So we felt at the end of June we could make an additional prepayment."

The recent prepayment also gives the banks more confidence, Poirier says.

Rodman & Renshaw's Borer says equity markets have improved. He says that if credit markets were functioning normally, companies likely would be going to banks to get capital to buy back more expensive equity. Instead, as is the case with Hecla, some companies are raising money in the equity market and using it to pay bank debt, which traditionally has been the lowest cost type of financing.

"They're the opposite of what they were two years ago," Borer says.

He says Hecla's June prepayment gave the Coeur d'Alene company a lot more flexibility in how it can use its capital, as well as less credit stress.

Clearwater Paper

Clearwater Paper, meanwhile, is still in its first year as an independent company, having spun off from Potlatch in December. In the split, Clearwater ended up with all of Potlatch's pulp, paperboard, and tissue operations, as well as one lumber mill, in Lewiston, Idaho. Potlatch retained its extensive timber holdings and lumber and sheet-product mills, and continues to operate as a real estate investment trust.

When Potlatch executives first planned the spin-off, the plan was for Clearwater to sell enough senior, unsecured high-yield notes to net roughly $150 million, which it would pay to Potlatch for its share of existing debt. By fall, though, the credit markets fell into disarray, quashing the market's appetite for high-yield debt, and Potlatch executives were forced to scramble to develop a new plan.

That new plan consisted of two steps. First, Clearwater would increase an already negotiated asset-backed revolving line of credit to $120 million, from $75 million, then draw $50 million from that line to pay Potlatch. In a second step, Clearwater would take on the obligation to pay $100 million in existing Potlatch debentures that are scheduled to mature in December 2009.

The idea was that Clearwater would refinance the $100 million in debentures before that maturity date. If the credit markets didn't improve by then, Potlatch would pay the debentures off itself and replace that Clearwater obligation with a note for the money to be paid directly to Potlatch.

Recently, however, Clearwater was able to sell $150 million in senior notes, due in 2016, from which it netted about $144 million, and used $107 million of that to pay off the Potlatch debentures, with interest, about six months earlier than the established deadline.

Clearwater says it will use the rest of the money for general corporate purposes.

"We saw it as a window of opportunity," Clearwater spokesman Matt Van Vleet said last week. "That opportunity was not available to us earlier; but when that window of opportunity opened, we took it."

Van Vleet declined to comment on whether corporate financing is loosening up in general, but says it was clear that what the company accomplished in June couldn't have been done six months earlier.

He says Clearwater worked closely with Goldman Sachs Group Inc. and Bank of America Corp., which were its advisers for the high-yield notes offering.

"With their help, we were able to successfully market the notes to the investment community," he says. "We met with investors, the investment community, and shared our operating performance, and it was acceptable to them. And most importantly, we demonstrated overall that Clearwater Paper was a good credit."

Steven Chercover, a senior research analyst at D.A. Davidson & Co.'s Portland, Ore., office who follows Clearwater Paper, says, "Credit markets are a bit friendlier these days, but it's company specific."

Chercover says the company had positive first and second quarters, and is generating cash.

As far as credit markets improving for corporations, he says, "You have to look at it on a company-by-company basis."

He says Clearwater's products, including toilet paper, are always in demand. Clearwater Paper makes more than 90 percent of the private-label toilet paper sold in grocery stores in the western U.S., and 56 percent of such tissue sold nationally.

"The demand for their products is pretty inelastic," he says.

Clearwater couldn't have pursued growth when it owed money to Potlatch, Chercover says.

"The banks are pretty comfortable with Clearwater, especially after the superb first quarter," Chercover says.

Clearwater Paper "took the money when it was available to them," he says. "You go to the banks when you can, not when you need to. If you have good credit, people are willing to lend you money."