Apr 07, 2009. /Lesprom Network/. PaperlinX Ltd's 2009 profit forecast has been downgraded by as much as 64% by analysts after the paper merchant secured an extension of waivers over debt covenant breaches from its bankers, as The Age informed Lesprom Network. PaperlinX said it would be hit with $103 million in net interest costs from higher lending margins and bank fees in the second half of 2008-2009 after negotiating an extension on waivers relating to the company's non-compliance with its interest rate covenant until May 31. Australia's big four banks, in a syndicate with HSBC Group and Deutsche Bank, together with a group of US private placement noteholders, granted the extension, pending the $700 million sale of PaperlinX's Australian Paper arm to Japan's Nippon Paper Group Inc, which is expected by June. The sale is expected to put a dent in the $1.06 billion of debt that PaperlinX owes to its lenders. Deutsche Bank analysts said the spike in bank fees and interest costs negotiated with the lending syndicate would drag PaperlinX's full year 2009 after-tax profit down by 64% to $17.2 million. Deutsche's Mark Wilson and Daniel Pi retained a buy recommendation on the stock but reduced their 12-month price target by 5 cents to $1.20 and their 2008-2009 earnings before interest and tax (EBIT) forecast by 27% to $116 million. Net profit should recover to $79.5 million in 2009-2010, they said in a client note. Credit Suisse's Rohan Gallagher and Dominic Smith still rate the stock as neutral but dropped their price target by 23.5% to 65 cents because of the higher financing costs. They expect full year 2009 EBIT to drop by 11.5% to $136 million and net profit to fall by 36.7% to $25 million. PaperlinX requires its lenders' approval to complete the sale of Australian Paper despite the Foreign Investment Review Board giving the deal the green light last week. Credit Suisse does not anticipate any deal-breaking issues for the sale, and said weaker global demand for paper was the greatest risk facing the company. Every US 1 cent upward movement against the Aussie dollar costs PaperlinX at least $A4 million in pre-tax earnings, Deutsche Bank said. PaperlinX posted a $560 million first half loss for 2009 due to asset write-offs. Earnings benefits from the completion of the Maryvale pulp mill upgrade in Victoria and an aggressive cost-cutting campaign will buffer the effect of higher financing costs in the second half, PaperlinX spokesman David Shirer said.