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Rating Action:

Moody's affirms Weyerhaeuser's Baa2 senior unsecured rating; outlook stable

29 Jan 2020

Approximately $6 billion of rated debt

Toronto, January 29, 2020 -- Moody's Investors Service ("Moody's") affirmed Weyerhaeuser Company's ("Weyerhaeuser") senior unsecured bond rating at Baa2. The outlook is stable.

"The affirmation reflects Weyerhaeuser's excellent liquidity, strong timber coverage and our expectation that leverage will decline below 4x in the next 12-18 months, driven primarily by EBITDA growth from higher wood product prices" said Ed Sustar, Senior Vice President with Moody's.

Outlook Actions:

..Issuer: Weyerhaeuser Company

....Outlook, Remains Stable

Affirmations:

..Issuer: Lowndes (County of) MS

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: MacMillan Bloedel Limited

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Plum Creek Timberlands, L.P.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Weyerhaeuser Company

....Senior Unsecured Shelf, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Willamette Industries, Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

RATINGS RATIONALE

Weyerhaeuser (Baa2 stable) benefits from 1) its very large and diversified timberland position, with approximately 11 million acres across 18 states (pro forma for the recent Michigan and the expected Montana timberland sales), 2) leading market positions in lumber, oriented strandboard (OSB) and engineered wood product (EWP) manufacturing, 3) good timberland coverage of debt, and 4) excellent liquidity. The company's timberland holdings provide significant financial flexibility by generating recurring operating earnings, offering debt reduction capabilities and enhancing liquidity. Weyerhaeuser receives two notches of lift to its credit rating attributed to Moody's estimate of the company's timberland value relative to its adjusted debt (2.9x estimated timberland value/adjusted debt as of September 2019).

Weyerhaeuser is constrained by the volatility of its wood products business (currently about a third of EBITDA) and the lack of free cash flow due to the high payout nature of its real estate investment trust (REIT) structure. We expect that Weyerhaeuser's leverage will decline to below 4x (from 5x September 2019) over the next 12-18 months as wood product prices normalize from weak levels in 2019.

Weyerhaeuser has excellent liquidity, with about $1.4 billion of liquidity sources to cover about $150 million of cash consumption after dividends and capital expenditures over the next four quarters. The company has $153 million of cash (September 2019), about $1.1 billion of availability on a $1.5 billion committed bank line (which matures in March 2022) and $145 million from the announced timberland sale in Montana (which is expected to close in Q2 2020). In addition, the company has a very large unencumbered asset base (most notably its timberland holdings) that can be used to augment liquidity. The company's next debt maturity is a $569 million debenture in March 2021, which we expect will be refinanced ahead of its maturity. The company was well in compliance with its net worth and debt-to-capital financial covenants at September 2019 and Moody's expects that to continue.

The stable outlook is based on our expectation that Weyerhaeuser's leverage will decline below 4x as wood product prices recover from recent lows and the company will maintain excellent liquidity and strong timber asset coverage. We expect that average lumber prices will increase 10% and average OSB prices will increase 20% in 2020 compared to 2019, as recent capacity curtailments take out some of the slack in the market. We expect wood product and saw log demand growth will be flat as US housing starts and renovation and remodeling activity levels off in 2020 after several years of growth.

Weyerhaeuser's principal business is growing trees, which provides carbon capture and an environmental benefit. However, as a manufacturing company, Weyerhaeuser is moderately exposed to environmental risks such as air and water emissions, and social risks such as labor relations and health and safety issues. The company has established expertise in complying with these risks, and has incorporated procedures to address them in their operational planning and business models.

Weyerhaeuser is a public company with well-established governance structures. As a REIT, the company regularly distributes a significant portion of its cash to its shareholders. Weyerhaeuser is also currently above its public net leverage target of below 3.5x (4.7x as of September 2019), and we expect that the company will improve its leverage through projected EBITDA growth and/or non-core asset sales.

Weyerhaeuser's ratings could be upgraded if:

- The company's adjusted debt to EBITDA approaches 2.5x (adjusted per Moody's standard definitions, 5.0x LTM September 2019) on a sustainable basis;

- Moody's estimate of timber asset value to adjusted debt coverage exceeds 2x (2.9x as of September 2019) and;

- liquidity remains strong.

Weyerhaeuser's ratings could be downgraded if:

- Adjusted debt to EBITDA is likely to be sustained above 4.0x (adjusted per Moody's standard definitions, 5.0x LTM September 2019), or

- Moody's estimate of timber asset coverage deteriorates to less than 1.5x (2.9x as of September 2019).

The principal methodology used in these ratings was Paper and Forest Products Industry published in October 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Seattle, Washington, Weyerhaeuser is a timber REIT with about 11 million acres of company-owned and leased commercial forestland in 18 US states (pro forma for both the Michigan and Montana timberland sales). Weyerhaeuser is also a leading producer of lumber (with 19 sawmills), oriented strandboard (with 6 mills) and engineered wood products (with 10 facilities).

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 ratings have 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
Senior Vice President
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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