Approximately BRL 500 million in debt securities affected
Sao Paulo, December 09, 2010 -- Moody's América Latina Ltda. has assigned a Baa3 global
scale rating and Aa1.br Brazilian national scale rating to the
BRL 500 million outstanding local currency senior unsecured debentures
issued by Suzano Papel e Celulose S.A. ("Suzano")
in 2004 in two series due in 2014 and 2019, respectively.
The ratings outlook is stable.
..Issuer: Suzano Papel e Celulose S.A.
....BRL 500 million Senior Unsecured Debentures
Due in 2014 and 2019, assigned Baa3 (global scale) and Aa1.br
(Brazilian national scale)
Issuer: Suzano Trading Ltd.
....USD 650 million Senior Unsecured Guaranteed
Bonds Due 2021: Baa3 (foreign currency rating)
The outlook for all ratings is stable.
The Baa3 / Aa1.br ratings of the debentures consider Suzano's position
as a low cost producer of bleached eucalyptus kraft pulp (BEKP) and paper,
with leading market positions in the global BEKP market and Brazilian
printing and writing paper and paperboard sectors. The company
benefits from a high level of vertical integration with substantial self-sufficiency
in wood fiber and energy, in addition to the proximity of its pulp
mills to its own forests and port facilities as well as the favorable
location of its paper plants within Brazil's most industrialized region.
As a result, the company has reported strong operating margins even
during the industry's downcycles. The rating is also supported
by Suzano's prudent financial management as evidenced by its solid liquidity
position and good risk management practices. While geographic diversification
of Suzano's revenues is good, we note that its operational diversity
is constrained by the concentration of market pulp production in the Mucuri
site location. Additional constraining factor is the company's
significant exposure to foreign currency as a large portion of its costs
are in local currency while revenues are linked to the U.S.
Dollar. Suzano's good corporate governance and level of disclosure
are regarded as credit positives.
Reflective of the elevated indebtedness to finance a new USD 1.3
billion mill for the production of 1.1 million tons of market pulp
in Mucuri, which is fully operational since early 2008, but
also of the weaker market conditions in 2009, Suzano reported Total
Adjusted Net Debt (considering a minimum cash of BRL 1 billion) to EBITDA
of 3.4x as of September 30, 2010 (LTM) which, although
declining from 4.0x as of June 30, 2010, is still high
for the Baa3 rating category. Based on the gradual price recovery
for pulp and paper since mid 2009 and improved cash flow generation,
we expect Net Debt to EBITDA to decline further towards 2.5x in
the near term as weaker quarters roll off.
Although the level of secured debt reported by Suzano as of September
30, 2010 was relatively high, representing some 30%
of total adjusted debt (primarily BNDES loans), we regard asset
coverage (based on book value, which we believe is substantially
below market value) as fairly strong, providing good level of comfort
to senior unsecured debt holders.
Suzano has announced sizeable investments for the period 2010 --
2014, including three wood pellet facilities with one million tons
of capacity each at an estimated cost of around USD 800 million,
and two 1.4 million tons BEKP mills in the states of Maranhão
and Piaui, respectively, with combined capital spending of
some USD 5.3 billion. While the entry into the wood pellet
business (for export to thermo power generators) should not represent
a significant challenge to Suzano from an operational view point,
we regard the risk of this new venture as moderate since the end-market
for wood pellets differs significantly from that for pulp and paper products.
Noting that the mentioned projects are still pending approval by the company's
board, we expect the company will manage the timing and capital
structure of its capex projects in order to maintain adherence to its
prudent financial policies including Net Debt to EBITDA of below 3.5x
during the execution of its expansion program, while maintaining
The stable outlook considers that Suzano will adequately manage its aggressive
investment plans over the near term in order to maintain leverage and
liquidity at manageable levels during the execution period. We
expect the company to pre-fund a substantial portion of its capital
spending with long-term debt, so that free cash flow from
existing operations is sufficient to cover current debt obligations.
An upward pressure on Suzano's debt rating is currently challenged by
its aggressive investment plans. However, a positive rating
action could be considered if the company manages to maintain Net Debt
(considering a minimum cash balance of BRL 1 billion) to EBITDA below
3.0x, together with Free Cash Flow before pre-funded
capex to Net Debt (as defined above) consistently in the mid-teen
range and strong liquidity during execution of its expansion projects.
On the other hand, negative pressure on the rating could result
if Net Debt (considering a minimum cash balance of BRL 1 billion) to EBITDA
increases above 4.0x during the execution of its expansion plans
without prospects for near-term reduction, or in case the
company's liquidity position deteriorates. Also, a significant
increase in secured debt could negatively pressure the ratings of unsecured
Moody's last rating action regarding Suzano occurred on September
9, 2010 when we assigned a Baa3 foreign currency rating to the USD
650 million senior unsecured guaranteed notes due 2021 issued by Suzano
The principal methodology used in rating Suzano 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.
Suzano Papel e Celulose, headquartered in Salvador --
Brazil, is a leading producer of bleached eucalyptus market pulp,
printing and writing paper and paperboard having reported consolidated
net revenues of BRL 4.3 billion (about USD 2.4 billion converted
by the average exchange rate) in the last twelve months ended on September
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moody's assigns Aa1.br rating to Suzano's outstanding debentures
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