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Rating Action:

Moody's raises Plum Creek to Baa2; outlook stable

05 Apr 2011

Approximately $1.1 billion in securities affected

New York, April 05, 2011 -- Moody's Investors Service today raised Plum Creek Timberland LP's senior unsecured rating to Baa2 from Baa3. The outlook was revised to stable from positive, reflecting Moody's expectation that Plum Creek will maintain ample balance sheet flexibility and solid credit metrics as the economy strengthens and the housing market recovers.

RATINGS RATIONALE

"The renewal and extension of its credit facility, combined with the recent note offering, has meaningfully improved Plum Creek's liquidity and debt maturity profile," said Chris Wimmer, vice president. "Moody's therefore believes an upgrade is warranted."

The timber REIT's rating was bolstered by a solid credit profile throughout the recession. Moody's anticipates fundamentals to gradually improve, particularly in Plum Creek's timber harvesting activities, as the overall economic environment stabilizes, with gains in new home construction and payrolls. Near term, the firm will enjoy greater incremental demand from Asia; longer term, we expect housing starts to triple today's annual rate, and with lower harvest volume from pine beetle-damaged forests in western Canada, there is further potential for Plum Creek to benefit.

As a result of the recent transactions, Plum Creek has only $95 million of debt to retire in 2011, and Moody's expects the $350 million maturity coming due in June 2012 to be addressed effortlessly. Moody's also views the timber REIT's nearly seven million unencumbered acres of timberland as a substantial strength. The freedom to monetize non-strategic land parcels enabled Plum Creek to meet its financial obligations as the economy faltered and demand for lumber dropped. Conversely, the biggest challenges facing Plum Creek are the cyclicality of the primary forward market for its timber, new home construction, as well as the lower margins relative to traditional commercial property REITs.

Moody's would likely revisit the rating with a positive bias should Plum Creek achieve substantial growth in assets to greater than $5 billion, with improvement in leverage to less than 40% of gross assets and net debt / EBITDA of 4x or lower, while maintaining ample liquidity and fixed charge coverage of 5x or better (all adjusted to exclude the impact of the Southern Timberlands joint venture).

A negative rating action would likely result should net debt / EBITDA increase in excess of 5x and fixed charge coverage fall below 3.5x. Additionally, significant declines in the size of the timberland portfolio or the introduction of secured debt into the capital structure would also likely lead to downgrades. While increasingly unlikely, a second recessionary dip would also weigh negatively on the rating.

The following ratings were raised with a stable outlook:

Plum Creek Timber Company, Inc. -- (P)Ba1 preferred shelf, from (P)Ba2.

Plum Creek Timberlands, L.P. -- Baa2 senior unsecured, from Baa3; (P)Baa2 senior unsecured shelf, from (P)Baa3; (P)Baa3 senior subordinate shelf, from (P)Ba1; (P)Baa3 subordinate shelf, from (P)Ba1.

Moody's previous rating actions with respect to Plum Creek took place in April 2010, when the timber REIT's ratings were affirmed and the outlook was revised to positive from stable.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010.

Plum Creek (NYSE: PCL) is a timber REIT headquartered in Seattle and is the largest and most geographically diverse private landowner in the nation with approximately 6.8 million acres of timberlands in major timber producing regions of the United States and wood products manufacturing facilities in the Northwest.

REGULATORY DISCLOSURES

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 information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses 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.

New York
Christopher Wimmer, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Nick Levidy
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's raises Plum Creek to Baa2; outlook stable
No Related Data.
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