TEXT-S&P rates Domtar's proposed notes 'BBB-'

Mon Aug 20, 2012 11:44am EDT

Aug 20 - Standard & Poor's Ratings Services today said it assigned its
'BBB-' issue-level rating to Montreal-based Domtar Corp.'s 
(BBB-/Stable/--) proposed US$250 million senior unsecured notes. The notes and
the guarantees are senior unsecured obligations of Domtar, ranking equally with
all of the company's existing and future senior unsecured notes. 

We understand that proceeds from the proposed notes will be used for general 
corporate purposes including capital expenditures and strategic acquisitions, 
or be placed in short-term investment vehicles. While this issuance will lead 
to a slight increase in Domtar's debt-to-EBITDA ratio, the increase will 
remain within the limits of our long-term corporate credit rating on the 
company. We expect Domtar's adjusted leverage ratio to increase to about 1.7x 
by year-end 2012; our measure incorporates lower EBITDA for the year caused by 
declining pulp prices and fewer paper shipments. Although we expect the new 
debt issuance to generate additional EBITDA, we have not incorporated this 
into our forecast. In addition, we believe the excess proceeds will improve 
the company's liquidity position, which remains exceptional.

"The ratings on Domtar reflect our view of the company's uncoated free sheet 
market, good cost profile, low leverage, and diversification opportunity 
through its recently acquired personal care segment," said Standard & Poor's 
credit analyst Jatinder Mall. "These positive factors are partially offset, in 
our opinion, by a steady decline in demand for uncoated free sheet as well as 
volatile prices for commodity pulp," Mr. Mall added. 

The stable outlook on Domtar reflects our expectations that the company will 
generate good cash flows and maintain leverage ratios below 2x. While the 
integration of Domtar's recently acquired personal care segment slightly 
improves diversity and stability of cash flows, the business remains largely 
exposed to a secular decline in North American uncoated free sheet (UFS) 
demand and volatile pulp prices. 

Domtar is the largest UFS manufacturer in North America, with 3.5 million 
short tons of capacity and 1.7 million metric tons of pulp capacity. The 
majority of the company's paper and pulp capacity is located in the U.S., and 
subsequent to the Attends brand acquisition, Domtar operates incontinence 
product manufacturing facilities in North Carolina and in Aneby, Sweden.

RATINGS LIST
Domtar Corp.
Corporate credit rating BBB-/Stable/--

Rating Assigned
Proposed US$250 mil. senior unsecured notes BBB-

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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