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Rating Action:

Moody's changes Alto Parana guaranteed bonds' outlook to stable

 The document has been translated in other languages

13 Aug 2010

USD 270 million senior debt affected

Buenos Aires, August 13, 2010 -- Moody's Latin America changed the ratings outlook for Alto Parana's USD 270 million fully guaranteed notes to stable from negative and affirmed the Baa2 foreign currency debt rating at the current rating level of the guarantor company, Celulosa Arauco y Constitucion S.A. (Arauco). At the same time, Moody's affirmed Alto Parana's Ba3 global local currency corporate family rating and the Aaa.ar national scale rating. The outlook for these ratings remains stable.

The Ba3 global local currency corporate family rating incorporates a two-notch rating uplift to the company's standalone credit profile provided by the implicit support from Alto Parana's parent company, Arauco.

The Ba3 corporate family rating considers the company's modest scale and limited geographical diversification as all the company's assets are located primarily in Argentina as well as risks associated with the country's operating environment. The rating also considers Alto Parana's commodity-oriented product mix, which is exposed to cyclical pulp prices. The company's dominant position in the domestic pulp/forestry market is considered a credit positive.

During the past two years, declining operating margins, higher input costs and unabsorbed fixed costs have weakened the company's overall credit metrics due to the rapidly declining pulp prices. However, improved pricing coupled with the devaluation impact on local currency costs, have contributed to improved operating performance in 2010.

In addition, the Ba3 rating reflects the current industry dynamics and continues to incorporate the expected support from Arauco. The support arises from the guarantees of the company's notes and the presence of cross default provisions that would cause an acceleration of most of Arauco's debt in the event of a default at Alto Parana. Alto Parana's notes benefits from the full and unconditional guarantee by the company's Chilean parent, Arauco, which is rated Baa2.

The Aaa.ar is a National Scale rating (NSR) is intended to measure the relative creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Argentina are designated by the ".ar" suffix. NSRs differ from global scale ratings in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.

The stable outlook on the Baa2 rating of the USD 270 million debt guaranteed by Alto Parana's parent company reflects the stable outlook on Arauco's ratings. The stable outlook on the corporate family ratings considers Moody's expectations that, despite the challenging operating environment, Alto Parana will manage its operating performance and overall credit profile supported by its relative efficient operations as a low cost producer. The stable outlook also reflects Moody's expectation of a prudent financial policy related to dividend payments and implicit support from Arauco going forward.

Alto Parana's corporate family ratings could see upward pressure if the operating framework led to a more stable and predictable performance for the company and a demonstrated ability to effectively manage the current downturn. Quantitatively, retained cash flow to debt above 20% (4.1% as of LTM 03-10) and debt to EBITDA below 1.5 times (3.9x as of LTM 03-10) could result in upward rating pressure.

On the other hand, a significant decline in operating performance or liquidity and persistent negative free cash flow could negatively impact Alto Parana's outlook and/or ratings. Alto Parana's corporate family ratings could also be lowered if its dividend payments or potential acquisition activities were to result in weaker debt protection measures.

Alto Parana is the largest forestry company in Argentina. It is engaged in the production of pulp, forestry, wood and chemical products and the management of forestry assets. Industrial plants are located in the province of Misiones, Buenos Aires and Santa Fé. Alto Parana manufactures whitened long fiber cellulose, wood paper pulp, sawn timber, panels and chemistry products.

Alto Parana is a company controlled by Industrias Forestales, a corporation belonging to Arauco Group, a Chilean company, engaged primarily in the production of pulp, wood products, and the management of forestry assets in Chile, Argentina, Uruguay and Brazil.

Buenos Aires
Veronica Amendola
Asst Vice President - Analyst
Corporate Finance Group

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

Moody's Latin America, Calificadora de Riesgo
Cerrito 1186, 11th fl
Buenos Aires C1010AAX
Argentina

Moody's changes Alto Parana guaranteed bonds' outlook to stable
No Related Data.
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