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23 Aug 2006
Moody's affirms Weyerhaeuser's Baa2/Prime-2 ratings and stable outlook
Approximately $8.0 billion of debt instruments affected
Toronto, August 23, 2006 -- Moody's Investors Service affirmed the debt ratings of Weyerhaeuser Company
("Weyerhaeuser") at Baa2/Prime-2 stable. The
outlook remains stable. The rating action responds to the company's
August 23rd announcement that it has agreed to combine its fine paper,
paper-grade pulp and related assets with Domtar Inc. (Domtar).
Weyerhaeuser's shareholders will own 55% of the new entity.
The new entity will borrow US$1.35 billion and make a cash
payment to Weyerhaeuser. In turn, Weyerhaeuser has indicated
it will use the proceeds to reduce debt. The transaction reduces
Weyerhaeuser's product line diversity and by Moody's estimation,
also causes a modest deterioration in Weyerhaeuser's credit statistics.
However, when considered in the context of the company's other
attributes, the most notable being the latent value in its vast
timberland holdings, the resulting overall profile continues to
be representative of a Baa2/P-2 paper and forest products company.
On this basis, the company's existing ratings are affirmed
at their existing levels and the outlook is stable.
Outlook Affirmed: Stable
Senior unsecured rating: Baa2
Senior unsecured bank credit facility: Baa2
Senior unsecured MTN: Baa2
Senior unsecured shelf: (P)Baa2
Backed IRB's: Baa2
Commercial paper rating: P-2
Willamette Industries, Inc.:
Bkd senior unsecured: Baa2
MacMillan Bloedel Limited:
Bkd senior unsecured: Baa2
Weyerhaeuser Real Estate Company:
Bkd commercial paper: P-2
Moody's has previously noted there are risks related to the magnitude
and sustainability of the recovery in paper and forest products' commodity
prices, and consequently, there is concern that many companies
in the paper and forest products sector may have difficulty generating
profit margins and credit protection measurements reflective of their
existing ratings. This situation is exacerbated by stress on input
prices, particularly energy, chemicals and fiber. However,
Weyerhaeuser has taken proactive steps to reduce its debt level,
and retains a significant ability to take further action through monetizing
its huge, high quality timberland position. Consequently,
Weyerhaeuser has considerable capacity to adapt to a changing landscape.
However, in recent quarters, Weyerhaeuser has been under increasing
pressure to provide enhanced returns to shareholders. With the
August 8th announcement that the U.S. Senate had voted down
changes in how timber in taxed, it is anticipated that external
pressure to divest the timberland holdings will intensify. As well,
on June 15, 2006, Weyerhaeuser announced that it was increasing
its regular dividend by 20% to $2.40 per share per
year, suggesting the increased payout rate could be justified given
expectations of future cash generation. The company also reiterated
commitment to a previously announced 18 million share buy-back
program (approximately $1.1 billion at the current share
price; over the short term at least, this will largely off-set
the above-noted $1.35 billion debt reduction).
To date, Weyerhaeuser has taken great pains to justify retention
rather than monetization of its vast timberland holdings. It had
also announced an exhaustive review of its assets and business line portfolio,
with today's divestiture announcement being a significant outcome
from this initiative. While the matter of monetizing the timberland
remains in the background, it does not yet have sufficient visibility
to warrant explicit ratings impact. Accordingly, the ratings
outlook is stable.
Headquartered in Federal Way, Washington, Weyerhaeuser Company
is one of the world's largest integrated forest products companies with
operations in the growing and harvesting of timber; the manufacture,
distribution and sale of forest products; and real estate construction,
development and related activities.
Daniel A. Curry
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
No Related Data.
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