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Announcement:

Moody's affirms Fibria's Ba1 rating; outlook changed to positive

 The document has been translated in other languages

30 Dec 2010

Approximately USD 1,933 million in rated debt securities affected

Sao Paulo, December 30, 2010 -- Moody's affirmed Fibria Celulose S.A.'s (Fibria) corporate family ratings of Ba1 on the global scale and Aa2.br on the Brazilian national scale rating, as well as the Ba1 foreign currency ratings of Fibria Overseas Finance Ltd senior unsecured guaranteed notes. The outlook for all ratings was changed to positive. The affirmation follows the announcement that Fibria has entered into an agreement with Suzano Papel e Celulose S.A. (rated Baa3, outlook stable) to sell its 50% interest in Consorcio Paulista de Papel e Celulose - Conpacel and 100% of KSR Distribuidora (paper distribution subsidiary) for BRL 1.5 billion in cash.

Ratings affirmed:

Issuer: Fibria Celulose S.A.

- Corporate Family Rating: Ba1 (global scale); Aa2.br (Brazilian national scale)

Issuer: Fibria Overseas Finance Ltd (Cayman Islands)

- USD 1.87 billion senior unsecured guaranteed notes due 2020: Ba1 (foreign currency)

- USD 63 million senior unsecured guaranteed notes due 2019: Ba1 (foreign currency)

The outlook for all ratings is positive.

RATINGS RATIONALE

The proposed sale of its 50% stake in Conpacel (the remaining 50% are already owned by Suzano) and of KSR is aligned with the company's publicly stated long term strategy. Fibria still owns specialty paper operations which we believe will also be sold in the near term. The deal with Suzano is expected to be concluded during January (Conpacel) and February (KSR) of 2011. The proceeds will help strengthen Fibria's cash position in advance of substantial financial obligations due in 2011, which include some BRL 1.5 billion related to the acquisition of Aracruz Celulose in 2009.

The positive outlook reflects our expectation that Fibria will accelerate leverage reduction with the proceeds from the announced assets sale and will continue to report strong margins and cash generation in the near term supported by favorable market conditions for BEKP and despite the strengthened Real. We expect that Fibria will prudently manage its large capex program in the near term while maintaining healthy liquidity.

Fibria's Ba1 rating reflects its leading position as the largest producer of market pulp in the world, its extremely competitive production costs which are among the lowest worldwide based on a long-term sustainable business model depicted by structural cost advantages when compared with most international peers, including self-sufficiency in wood fiber and electricity and efficient logistics. Fibria's low product diversity and its relative small size when compared with global peers as measured by net revenues are constraining factors for its rating. Operational diversity is good with pulp production spread over five plants, although 83% of capacity is concentrated in three site locations.

Revenues are largely generated under long-term supply contracts that support stable sales volume with good geographic diversification. Additionally, the Ba1 rating incorporates the benefit from the ownership by and expected support from Votorantim Participações S.A. (Baa3, outlook stable) due to existing cross default provisions in part of Votorantim's outstanding debt. Also, our view of Fibria's strong ownership considers the fact that the Brazilian Development Bank BNDES (A3, outlook stable) is currently its largest individual shareholder through its subsidiary BNDES Participações S.A. (A3, outlook stable) with 30.4% of Fibria's voting and total capital as of November 30, 2010, and a major lender to the company.

As anticipated, during 2010 Fibria has reduced its leverage as measured by Net Adjusted Debt to EBITDA of 3.5x as of September 30, 2010 LTM (6.1x as of December 31, 2009) thanks to its improved operational performance reflecting higher pulp prices and also synergies captured from the merger with Aracruz, that more than off-set the negative impacts of the strong Real. EBITDA margin (as defined by Moody's) in the first nine months of 2010 averaged 45% (30.7% in FY2009), comparing very favorably with most international peers. Although lower demand in China combined with new capacity in Asia (April in China and Kerenci in Indonesia) led to reduced pulp prices in 4Q2010 and further decline is likely to occur during the first half of 2011, we believe that the lack of significant additional new capacity before 2013 and continuous global demand growth will support prices at fairly high levels over the next couple of years.

We expect Fibria will be free cash flow positive in 2010 and 2011 and will continue to have ample access to pre-export financing in support of the maintenance of adequate liquidity. Also, we believe that the Brazilian Development Bank - BNDES will continue to finance a substantial portion of Fibria's capital spending at arms length terms and conditions.

Fibria has ambitious expansion projects in the period 2012 -- 2018 that include the expansion of the Tres Lagoas and Veracel (50%-50% joint venture with Stora Enso) mills at an estimated total cost of about BRL 8 billion. We expect the company will prudently manage the timing of its capex program in order to maintain adequate leverage and liquidity during the execution period.

The ratings could be upgraded if Fibria manages to reduce leverage as measured by Total Adjusted Net Debt to EBITDA approaching 3x together with Retained Cash Flow (defined as Funds From Operations less Dividends) less Capex (net of pre-funded Capex) to Total Adjusted Net Debt above 12% on a consistent basis.

The ratings outlook could be stabilized in case Fibria is unable to continue to delever, or in case of deterioration in liquidity. Also, a deterioration of VPAR's credit quality could negatively impact Fibria's ratings. A substantial increase in secured debt could negatively affect the senior unsecured notes rating.

Our last rating action on Fibria was on April 22, 2010 when we assigned a Ba1 foreign currency rating to the senior unsecured notes due 2020 issued by Fibria Overseas Finance Ltd. and guaranteed by Fibria Celulose S.A..

The principal methodology used in rating Fibria was Moody's Global Paper and Forest Products Industry rating methodology published in September 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".br" for Brazil. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings.

Fibria Celulose S.A. is the largest producer of market pulp in the world, and also produces specialty paper, such as coated, thermal, and carbonless paper. In the last twelve months ended September 30, 2010, Fibria reported consolidated net revenues of BRL 6.9 billion (USD 3.9 billion converted by the average foreign exchange rate for the period).

Sao Paulo
Richard Sippli
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

New York
Brian Oak
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's America Latina Ltda.
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Moody's affirms Fibria's Ba1 rating; outlook changed to positive

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