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Rating Action:

Moody's downgrades Rayonier's ratings to Baa2; outlook stable

02 May 2014

Approximately $450 million of rated debt securities affected

NOTE: On June 01, 2014, the press release was revised as follows: In the Regulatory Disclosures section, added the Canada Ancillary Disclosure as the fourth paragraph. Revised release follows.

Toronto, May 02, 2014 -- Moody's Investors Service downgraded Rayonier Inc.'s (Rayonier) senior unsecured debt ratings to Baa2 from Baa1, concluding a review initiated on January 27, 2014. The rating outlook is stable.

Downgrades:

..Issuer: Rayonier Inc.

....Senior Unsecured Regular Bond/Debenture Apr 1, 2022, Downgraded to Baa2 from Baa1

..Issuer: Rayonier Forest Resources, L.P.

....Senior Unsecured Regular Bond/Debenture Dec 31, 2014, Downgraded to Baa2 from Baa1

Outlook Actions:

..Issuer: Rayonier Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Rayonier Forest Resources, L.P.

....Outlook, Changed To Stable From Rating Under Review

The downgrade reflects the significantly smaller, less-diversified company that Rayonier becomes following the spin-off of its dissolving-pulp business into a separate, publicly traded company. Over the past several years, the dissolving-pulp business (which generated about 60% of the company's sales and EBITDA) diversified the company away from its timberland and real estate business, mitigating some of the financial effects of lower than trend US homebuilding and declining paper markets. In connection with the separation, proceeds from the tax free spin-off will be distributed to Rayonier and used primarily to pay down existing debt. Moody's estimates that Rayonier's net debt will decrease by 64%, and leave the company with strong pro forma net adjusted debt to EBITDA of 1.9x, down from 2.2x (LTM March 2014). The transaction is expected to be completed by mid-2014 and is subject to an IRS ruling regarding the tax free status and customary closing conditions.

Rayonier's Baa2 senior unsecured rating is primarily driven by the company's large timberland holdings which provide significant earnings as well as debt reduction capability and liquidity. The company's very strong asset value coverage with its diversified timberland base and low leverage are tempered by the company's limited scale, product-line diversity and modest free cash flow generation given its REIT structure. Rayonier's financial performance is significantly influenced by the level of US housing starts, which is expected to improve towards trend levels over the next 2 to 3 years.

Rayonier has strong liquidity with $156 million in cash (as of March 2014) and $243 million of available borrowing capacity under its $450 million revolving credit facility which matures in 2016 and $140 million of available borrowing capacity under a $640 million senior unsecured delayed-draw term credit agreement which matures 2017 (availability as of December 2013). Moody's expects proceeds in connection with the spin-off will be distributed to Rayonier and used primarily to pay down these credit facilities. Following the spin-off, Moody's expects that Rayonier will maintain strong liquidity. Moody's estimates that the company will generate about $40 million of free cash flow over the next 12 months (after dividends) following the spin-off and will use its balance sheet cash to pay-off the $131 million of senior exchangeable notes when they mature in 2015. Financial covenant compliance is not expected to be problematic and the company's significant land ownership can be used to augment liquidity.

The stable outlook reflects Moody's expectation that Rayonier's timber and real estate businesses will improve along with increasing US housing starts and a continuation of steady log exports to Asia. An upgrade could result with material growth in Rayonier's size (revenue base over $3 billion) and product diversity (new business segment unrelated to housing starts), while maintaining strong timberland coverage and leverage (adjusted debt to EBITDA) below 2.5x (adjusted per Moody's standard definitions) on a sustainable basis. The rating could be downgraded if market conditions deteriorate such that timberland values decline significantly or if normalized adjusted debt to EBITDA approach 4x. In addition, Moody's would view material asset encumbrances or significant asset sales as a negative.

The principal methodology used in this rating was Global Paper and Forest Products Industry published in October 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Based in Jacksonville, Florida, Rayonier is a timber real estate investment trust. Rayonier's retained Forest Resource and Real Estate business generated pro-forma 2013 revenue of about $700 million and owns or leases about 2.5 million acres of timber and land in the US and New Zealand, as well as residential and commercial development properties.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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.

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The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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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
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's downgrades Rayonier's ratings to Baa2; outlook stable
No Related Data.
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