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.
Corporate credit rating BBB-/Stable/--
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