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26 Apr 2000
MOODY'S LOWERS LONG TERM SECURITIES RATINGS OF INTERNATIONAL PAPER (SR. DEBT TO Baa1); SHORT-TERM P-2 RATING PLACED UNDER REVIEW FOR POSSIBLE DOWNGRADE, ALL LONG-TERM RATINGS REMAIN UNDER REVIEW FOR POSSIBLE DOWNGRADE. CHAMPION INTERNATIONAL DEBT RATINGS
Moody's Investors Service lowered the long-term debt ratings of International Paper as well as all of the industrial revenue and pollution control supported bonds to Baa1 from A3; all long term ratings remain on review for possible downgrade, continuing the review begun February 17, 2000. At the same time Moody's placed International Paper's Prime-2 commercial paper rating under review for possible downgrade. Moody's also placed all long and short-term debt ratings of Champion International Corporation under review for possible downgrade. These rating actions are prompted by International Paper's announcement that it had made an offer to acquire Champion International for approximately $8.4 billion in cash and stock, including the assumption of approximately $2.3 billion of Champion debt, and following several years of pricing constrained operating earnings that already has left debt protection measurements weakened.
Ratings lowered:
International Paper Company and/or International Paper Capital Trusts - senior notes, debentures, Eurobonds, medium term notes, and industrial revenue and pollution control
bonds - to Baa1 from A3
shelf registration - to (P)Baa1 from (P)A3
junior subordinated deferred interest debentures - to Baa3 from Baa2
preferred stock - to "baa2" from "baa1"
Union Camp Corporation - notes, debentures, and medium term note program - to Baa1 from A3
Federal Paper Board Inc - notes - to Baa1 from A3
Ratings on review for possible downgrade:
International Paper Company and/or International Paper Capital Trusts - senior notes, debentures, Eurobonds, medium term notes, and industrial revenue and pollution control
bonds -currently Baa1
Commercial Paper - currently Prime-2
shelf registration - currently (P)Baa1
junior subordinated deferred interest debentures - currently Baa3
preferred stock - currently "baa2"
Union Camp Corporation - notes, debentures, and medium term note program - currently Baa1
Federal Paper Board Inc - notes - currently Baa1, shelf registration - currently (P)Baa1
Champion International Corporation - senior notes, bonds, debentures, and industrial revenue and pollution control bonds - currently Baa1
Commercial Paper - currently Prime-2
Moody's notes that International Paper's long-term ratings had been placed under review on February 17, 2000 following the announcement that International Paper had made an all cash tender offer for Shorewood Packaging Corp. Our A3 ratings on IP securities previously had incorporated our expectation that International Paper would continue in its debt reduction program, and refrain from making debt-financed acquisitions until debt protection measurements had demonstrated sustained improvement We believe that International Paper may have altered its strategy towards balance sheet management, with the acquisition of Shorewood and the potential purchase of Champion demonstrating International Paper's willingness to participate in debt-financed transactions in the rapidly consolidating paper and forest products industry. As a result, Moody's believes that, going forward, International Paper's debt protection measurements throughout the paper industry cycle will be more reflective of a Baa credit.
Moody's notes that International Paper has been able to extract significant synergies from its recent acquisitions, including those of Federal Paper Board and Union Camp. We consider it likely that International Paper will be able to build on its past experience to integrate and build on the strengths that both Shorewood, and possibly Champion can bring to its core printing paper, packaging, and wood/timber businesses. Never the less, the build up in debt from these two transactions approaches $5 billion, and even assuming the realization of synergies, the success of both IP's and of Champion's EBIT improvement programs, and a strong cyclical upturn, we believe that it will be difficult to rapidly repay this acquisition debt with cash from operations, leaving debt protection measurements inadequate to support the A3 rating.
International Paper has indicated that it will proceed with more than $3 billion in asset sales, which it expects to compete by the end of 2001, using the proceeds to reduce what will be close to $16 billion in debt or debt-like securities. Moody's review will focus on the timing of the sales and the magnitude of the proceeds. At this point, even should sales be delayed, however, it is our expectation that International Paper senior unsecured debt will continue to be rated investment grade.
Moody's review of the ratings of International Paper will also focus on this possible acquisition of Champion, as well as earlier acquisitions and their broad ramifications for operations and financial strategy for International Paper. Our review will assess the extent to which the company's synergies, recent and on-going cost and productivity improvement programs, can enhance base line cash flow, and coming on top of improving industry pricing, can improve debt protection measurements in the near-term. The ratings of Champion International have been placed under review for possible downgrade in recognition of the acquisition effort, and the potential that it may negatively impact the credit quality of Champion.
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.
No Related Data.
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