MOODY'S CONFIRMS INTERNATIONAL PAPER COMPANY'S AND CHAMPION INTERNATIONAL'S SHORT AND LONG TERM DEBT RATINGS (PRIME-2 COMMERCIAL PAPER RATINGS, Baa1 LONG TERM SENIOR DEBT RATINGS). NEGATIVE RATING OUTLOOK IS ASSIGNED.
Moody's Investors Service confirmed both the Prime-2 commercial paper ratings and the Baa1 senior debt ratings of International Paper Company and Champion International Corporation, ending the review which began April 27, 2000 following the announcement that IP had made an unsolicited offer to acquire Champion International in a cash and stock transaction.
International Paper Company and /or International Paper Capital Trusts
International Paper Company and/or International Paper Capital Trusts -
Senior notes, debentures, Eurobonds, medium term notes, and industrial revenue and pollution control bonds - Baa1
Commercial Paper - Prime-2
Shelf Registration- (P)Baa1
Junior subordinated deterred interest debentures - Baa3
Union Camp Corporation - notes, debentures, and medium term note program - Baa1
Federal Paper Board Inc. - notes- Baa1
Champion International Corporation -
Senior notes, bonds, debentures, and industrial revenue and pollution control bonds - Baa1
Commercial Paper - Prime-2
Moody's notes that the confirmation of International Paper's debt ratings reflects our expectation that, if the acquisition of Champion International is completed as expected, IP will be successful in repaying a significant portion of the approximately $7.7 billion in acquisition-related debt that it will be adding to its balance sheet. We anticipate that a significant portion of debt reduction will come from the proceeds from a $3 billion asset sale program, which may include timberland sales if needed to reach the company's divestiture target. We also anticipate that synergies from the acquisition and earnings improvement from on-going profit improvement programs will, together with the cyclical upturn in industry pricing, help generate significant free cash flow to facilitate debt reduction and to restore debt protection measures to support the current ratings. We also believe that revenue and cost synergies from the planned acquisition, together with recent and on-going cost and productivity programs can enhance International Paper's base line cash flow, supporting debt protection measurements during cyclical troughs.
The confirmation of International Paper's short-term rating also reflects our expectation that the company will manage its liquidity risk in a manner consistent with the rating, quickly repaying a portion of what is expected to be large commercial paper and money market note borrowings, and placing some debt at longer maturities. The company has targeted selling $3 billion in assets by year-end 2001, and using the proceeds to reduce debt. We note that International Paper's acquisition of Champion will require IP to amend its existing bank revolving credit agreement; we expect any issues will be resolved prior to the transactions's closing. We also note that the alternative liquidity benefits from the lack of a material adverse change clause.
The outlook for International Paper is negative; any significant delay in the asset sale program following the completion of the Champion acquisition would leave debt levels, particularly in short-term instruments, high. This could increase liquidity risk, while delaying improvement in debt protection measurements, and would likely result in a downgrade from the Baa1 rating. The negative outlook also reflects the challenges facing the company in successfully increasing its base-line cash flow as it both integrates recent acquisitions and continues with programs to boost earnings through revenue enhancements and decreased operating costs. Should base-line cash flow not materialize as we expect, debt protection measurements may prove inadequate to support the Baa1 rating.
The confirmation of Champion International's short and long-term debt ratings is based on the confirmation of International Paper's short and long-term debt ratings.
International Paper Company, headquartered in Purchase, New York, is a worldwide producer of printing papers, packaging, and forest products. Champion International, headquartered in Stamford, Connecticut, is a diversified paper and forest products company.
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