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