Approximately USD 500 million in debt securities affected
Sao Paulo, February 28, 2011 -- Moody's Investors Service has assigned a Ba1 foreign currency rating
to Fibria Overseas Finance Ltd (Cayman Islands) proposed issuance of approximately
USD 500 million (could be upsized to up to USD 750 million depending on
market conditions) in senior unsecured notes due 2021, to be unconditionally
and irrevocably guaranteed by Fibria Celulose S.A. ("Fibria").
The rating outlook is positive. The issuance will not result in
leverage increase as the net proceeds from the notes will be used to refinance
existing debt, improving the company's debt maturity profile
Issuer: Fibria Overseas Finance Ltd (Cayman Islands)
Approximately USD 500 million Senior Unsecured Guaranteed Notes:
Ba1 foreign currency rating
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.
The Ba1 rating of the notes assume that the final transaction documents
will not be materially different from draft legal documentation reviewed
by Moody's to date and assume that these agreements are legally valid,
binding and enforceable. The rating of the proposed notes is at
the same level as its Ba1 corporate family rating based on the low amount
of secured debt and unsecured debt with claim priority over the proposed
notes (totaling approximately 17% of total consolidated adjusted
debt including financial obligations related to the acquisition of Aracruz)
and the fact that some 99% of the total consolidated adjusted debt
as of December 31, 2010 was either at Fibria or guaranteed by Fibria.
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, and a major lender to the company on an arms-length
As anticipated, during 2010 Fibria has significantly reduced its
leverage as measured by Total Adjusted Debt (including financial obligations
related to the acquisition of Aracruz) to EBITDA of 4.1x as of
December 31, 2010, down from 9.0x one year earlier.
Because Fibria has a track record of maintaining hefty cash position on
its balance sheet, Moody's also looks at its leverage on a
Net Adjusted Debt basis considering a minimum cash position of BRL 1 billion,
which together with the company's access to export pre-financing,
BNDES loans to fund capex, and Votorantim's committed credit
facility, provide comfort on the company's adequate liquidity.
On a net debt basis, leverage declined to 3.8x as of 2010
year-end (or 3.3x pro-forma for the BRL 1.5
billion proceeds from the disposal of Conpacel and KSR) from 7.4x
in 2009. The leverage reduction reflects Fibria's improved
operational performance due to higher pulp prices and synergies captured
from the merger with Aracruz, that more than off-set the
negative impacts of the strong Real, as well as the use of proceeds
from the disposal of the Guaiba mill in late 2009 to prepay debt.
Consequently, EBITDA margin (as defined by Moody's) increased to
46% in 2010 from 31% in 2009, comparing very favorably
with most international peers. Despite the pressure on costs deriving
from the strong Real, we expect margins to remain robust given the
lack of significant additional new capacity before 2013 and continuous
global demand growth supporting prices at fairly high levels over the
next couple of years.
We expect Fibria will continue to be free cash flow positive in 2011 and
will continue to have ample access to pre-export financing in support
of the maintenance of adequate liquidity. Still on liquidity,
we expect Fibria will proactively and timely manage to remain in compliance
with tightening leverage covenants under existing debts totaling some
BRL 382 million, which indentures limit Net Debt to EBITDA at 3.0x
as of June 30, 2011 (3.72x reported as of December 31,
2010; 3.2x pro-forma for the disposal of Conpacel and
KSR). 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 positive outlook reflects our expectation that Fibria will accelerate
leverage reduction with the proceeds from 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.
The ratings could be upgraded if Fibria manages to reduce leverage as
measured by Total Adjusted Net Debt (considering a minimum cash position
of BRL 1 billion) to EBITDA approaching 3x (3.3x reported as of
December 31, 2010 pro-forma for the disposal of Conpacel
and KSR) together with Retained Cash Flow (defined as Funds From Operations
less Dividends) less Capex to Total Adjusted Net Debt (as defined above)
above 12% on a consistent basis (reported 11% as of December
31, 2010 pro-forma for the disposal of Conpacel and KSR).
We expect a large portion of Fibria's planned capex will be pre-funded
with committed long term debt. During period of heavy capital spending
Moody's may also look at capex net of pre-funding.
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 December 30, 2010 when we
affirmed its 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, and changed the outlook for all ratings to positive from
stable. The action followed the announcement of the disposal to
Suzano Papel e Celulose S.A. (rated Baa3, outlook
stable) of 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.
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.
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 2010, Fibria reported
consolidated net revenues of BRL 6.3 billion (approximately USD
3.6 billion converted by the average foreign exchange rate).
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
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
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Investors Service provides a date that it believes is the most reliable
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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 Ba1 rating to Fibria's proposed notes; outlook positive
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