TEXT-Fitch affirms Empresas CMPC's IDRs, outlook stable

Tue Oct 2, 2012 3:23pm EDT

(The following statement was released by the rating agency)

Oct. 2 - Fitch Ratings has affirmed the 'BBB+' foreign and local currency IDR's of Empresas CMPC (CMPC). Fitch has also affirmed the 'AA (cl)' long-term and F1+ (cl) short-term national scale ratings of CMPC, as well as its Primera Clase Nivel 1 (cl) equity rating. In conjunction with these rating actions, Fitch has affirmed the 'BBB+' foreign currency IDR of Inversiones CMPC and its 'AA (cl)' long-term and F1+ (cl) short-term national scale ratings. Fitch has also affirmed the following debt issuance and debt programs of Inversiones CMPC as follows: --Senior unsecured foreign currency debt at 'BBB+' --National scale local currency debt programs at 'AA (cl) --Senior unsecured long-term debt denominated in Chilean pesos at 'AA (cl)' --Commercial paper denominated in Chilean pesos at 'AA (cl)' and 'F1+(cl)' Inversiones CMPC is a wholly-owned subsidiary of Empresas CMPC (CMPC) and is incorporated in the Cayman Islands as an exempted limited liability company. All of Inversiones CMPC's debt is unconditionally guaranteed by CMPC. Its ratings have been linked to those of CMPC through Fitch's Parent and Subsidiary Rating Linkage Criteria. The Rating Outlook of CMPC and Inversiones CMPC remains Stable. CMPC's credit ratings reflect the company's strong business position and sound financial profile. The ratings also take into consideration CMPC's consistently conservative financial philosophy, strong market positions and large forestry holdings. During the LTM ended June 30, 2012, CMPC generated USD924 million of EBITDA. This figure compares with USD1.1 billion of cash and marketable securities and USD3.8 billion of total debt at the end of June. CMPC's net debt-to-LTM EBITDA ratio was 2.9 times (x), while its FFO fixed charge coverage ratio was 5.2x. These credit metrics are weaker than the average ratios maintained by the company during the previous five years of 2.4x and 8.9x, respectively. Fitch expects CMPC's metrics to remain weaker than historical levels during 2012 and 2013 due to low pulp prices. CMPC's financials should not be under the same degree of pressure as many of its peers due to its product and market diversification. Market pulp is CMPC's most important product, accounting for about 40% of EBITDA during LTM ended on June 30, 2012. CMPC is the leading tissue producer in several markets in Latin America and has an important position in various paper products within Chile. CMPC's position in these markets is strong due to the strong brand equity of its products, its low production cost structure, and strong distribution network. During 2012 and 2013, Fitch forecasts GDP growth rates of 3.4% and 4.2% in Latin America. This level of growth should drive demand for CMPC's tissue and paper products in these markets and lead to a favorable pricing environment. Liquidity is manageable for CMPC. Debt amortizations total USD67 million for the balance of 2012, USD330 million in 2013, USD413 million in 2014 and USD559 million in 2015. The pulp and paper operations of CMPC are supported by its ownership of more than one million hectares of land in Chile, Argentina and Brazil. CMPC has developed approximately 670,000 hectares of hardwood and softwood plantations. The land and plantations have an accounting value of approximately $4.9 billion as of June 30, 2012. A portion of these plantations could easily be monetized by CMPCto generate cash, if needed. A rating upgrade for CMPC is not likely in the near future, as capital expenditures are anticipated to be high. The management of CMPC is expected to request approval from its Board of Directors in the near-term for the construction of a brownfield pulp expansion project in Brazil (Guaiba II pulp mill). This project consists of new pulp mill capable of producing 1.3 million tons per year of BEKP. As part of this project, CMPC acquired 40,000 hectares of hardwood plantations in Brazil for USD300 million during September. Factors that could lead to consideration of a Negative Outlook or downgrade include a change of management's strategy with regard to the relatively conservative capital structure the company has maintained. Fitch expects that if the pulp project goes ahead, CMPC will finance part of this project with a capital increase to lessen pressure on credit metrics. If market conditions remain weak and CMPC doesn't issue equity to fund a portion of the project, a negative rating action is likely. Inversiones CMPC is a wholly-owned subsidiary of CMPC. It issues debt through its Cayman Island agency. All of Inversiones CMPC's debt is unconditionally guaranteed by CMPC. Its ratings have been linked to those of CMPC through Fitch's Parent and Subsidiary Rating Linkage Criteria. Fitch currently rates CMPC and Inversiones CMPC as follows: CMPC -- Long-term local and foreign currency IDRs 'BBB+'; --National scale rating long-term 'AA (cl)'; --National scale rating short-term 'F1+ (cl)'. The Rating Outlook is Stable. Inversiones CMPC --Foreign currency long-term IDR 'BBB+'; --Senior unsecured notes 'BBB+'; --National scale rating long-term 'AA (cl)'; --National scale rating short-term 'F1+ (cl)'. The Rating Outlook is Stable. Contact: Primary Analyst Joe Bormann, CFA Managing Director +1-312-368-3349 Fitch, Inc., 70 West Madison Street, Chicago, IL 60602 Secondary Analyst Monica Coeymans Director +56-2-499-3312 Committee Chairperson Rina Jarufe Senior Director +56-2-499-3310 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. (Reporting By Hilary Russ)

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