MOODY'S CONFIRMS INTERNATIONAL PAPER CREDIT RATINGS -- SENIOR AT A3; UPGRADES DEBT RATINGS OF FEDERAL PAPER BOARD -- SENIOR AT Baa1
New York, 02-05-96 -- Moody's Investors Service confirmed the A3 senior debt ratings of International Paper Company (IP). Moody's believes that IP's acquisition of Federal Paper Board Company, Inc. (Federal) will not materially impact the company's debt protection measurements because a substantial component of the acquisition is financed with equity, and overall debt increase is mitigated by proceeds from asset sales. The rating agency also upgraded the senior debt ratings of Federal Paper Board to Baa1, from Baa3. Moody's notes that, at this time, International Paper has not guaranteed, or otherwise assumed, Federal's debt. IP's rating for commercial paper is confirmed at Prime-2. This concludes a review begun on November 6, 1995.
Confirmed Ratings are:
International Paper Company -- debentures, notes, industrial revenue bonds, medium term notes at A3; shelf registration at (P)A3.
International Paper Capital Trust -- preferred stock at "baa1".
Upgraded ratings are:
Federal Paper Board Company, Inc. -- debentures, industrial revenue bonds to Baa1 from Baa3; shelf registration to (P)Baa1 from (P) Baa3.
Moody's said that the Federal acquisition further enhances IP's position as the world's largest paper and forest products company with very broad product and geographical diversity. The company's revenues will exceed $20 billion. Despite the increase in financial leverage, IP will generate strong cash flow over the business cycle, enabling it to fund its capital spending requirements. Over the next several years, Moody's anticipates a gradual reduction in IP's financial leverage, largely due to the growth in its equity base. The major risk to the rating, in Moody's view, remains the company's acquisitive nature. However, the rating agency notes that management's willingness to issue equity from time to time has kept IP's debt levels within an acceptable range relative to its cash generating capacity, and continues to be an important factor in Moody's rating evaluation.
In acquiring Federal, IP is issuing equity for about one-half the acquired Federal shares, making the total cost of the acquisition (including acquired debt) about 37% equity financed. Additionally, IP has announced plans to sell some of its forest lands in the Pacific Northwest, with expected cash realization of about $750 million, which would be used to moderate the debt increase.
Headquartered in Purchase, N.Y., International Paper Company will now have over 12 million tons of paper capacity, in addition to a large forest products operation, with over 5 million acres of timberland. IP is also the second largest distributor of paper products in the United States and its more diverse operations include photographic papers, window and door frames, specialty panels, oil and gas production, and chemicals.
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