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Rating Action:

Moody's Affirms Plum Creek's Baa2 rating after timberland purchase

28 Oct 2013

Approximately $1.5 billion of rated debt affected

Toronto, October 28, 2013 --

Moody's Investors Service (Moody's) affirmed Plum Creek Timberlands, L.P.'s ("Plum Creek") Baa2 senior unsecured rating following the company's offer to purchase assets including 500,000 acres of timberland from MeadWestvaco Corporation ("MWV") (Baa3/Stable). The outlook remains stable.

Plum Creek is expected to finance the $1.1 billion timber acquisition with a significant amount of equity. Plum Creek's net debt will increase by $416 million following a $700 million equity raise and $444 million pay down of existing debt. Upon the completion of the transaction, Plum Creek's leverage should remain essentially unchanged as both debt and projected EBITDA will increase by about 20%. The acquired 500,000 acres of timberlands should generate higher cash flow in future years given the high proportion of harvestable mature Southern Yellow Pine trees. Plum Creek should be able to benefit from a more favorable harvest mix going forward by selling a higher component of sawlogs into the improving US housing market. Over the past several years, MWV harvested primarily lower value pulp logs from these timberlands.

In addition, Plum Creek is acquiring joint venture interest in approximately 110,00 acres of higher value land (recreation and development properties near Charleston SC) and interests in some coal and wind assets. The $1735/acre that Plum Creek is paying for the MWV timberlands, is on the upper end of transactions in the region, and reflects the quality of timberland, including the high stocking levels, age and favorable harvest mix. MWV's properties are close to Plum Creek's existing land, which should led to material and achievable synergies.

RATINGS RATIONALE

Plum Creek's Baa2 senior unsecured rating is primarily driven by the company's extensive timberland holdings which provide significant earnings as well as debt reduction capability and liquidity. The company's strong market position in timberlands and resilient real estate earnings are tempered by the company's relatively small revenue base, its limited free cash flow generation given its REIT structure and by the company's high debt leverage. Plum Creek's financial performance is significantly influenced by the level of US housing starts, which is expected to improve towards trend levels over the next 2 to 3 years.

Plum Creek has strong liquidity, with an aggregate $700 million in cash and availability as of June 2013 under its committed bank line (that matures in April 2017) and an unencumbered asset base (most notably its timberland holdings) that can be used to augment liquidity. Plum Creek has negligible short term debt maturities and Moody's estimates that the company will generate about $80 million of free cash flow over the next 12 months after dividends. The company is in compliance with its covenants and we do not expect near-term covenant compliance to be problematic.

The stable outlook reflects the flexibility inherent in Plum Creek's timber assets and the expectation that its timber, wood products and real estate businesses will improve along with increasing US housing starts. The rating could be upgraded if the company's increases its revenue base to over $3 billion and net debt to EBITDA approaches 2.5x (adjusted per Moody's standard definitions) on a sustainable basis, while maintaining good liquidity and timberland value. The rating could be downgraded if market conditions deteriorate such that timberland values decline significantly or if normalized net debt to EBITDA does not improve from 4x.

The principal methodology used in this rating was the Global Paper and Forest Products Industry Methodology published in October 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Seattle, Washington, Plum Creek is a Real Estate Investment Trust (REIT) which owns timberlands across 19 US states. Geographically it is the most diverse REIT and is one of the largest private landholders in the United States with about 7 million acres including the MWV land acquisition.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ed Sustar
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's Affirms Plum Creek's Baa2 rating after timberland purchase
No Related Data.
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