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Rating Action:

Moody's raises Rayonier to Baa1; outlook revised to stable

22 Feb 2012

Approximately $113 million in securities affected.

New York, February 22, 2012 -- Moody's Investors Service today raised the senior unsecured ratings of Rayonier Inc. and its subsidiaries to Baa1 from Baa2, and revised the timber REIT's rating to stable from positive. The upgrade results from Rayonier's growth in size, earnings and cash flow while sustaining high fixed charge coverage and low leverage.

RATINGS RATIONALE

"Even with the weakness and uncertainty in the economy, Rayonier has generated increasing cash flow and strengthened its credit profile," said Chris Wimmer, Vice President at Moody's. "Equally impressive is its leadership in the cellulose specialties business and its flexible balance sheet anchored by a large and diverse timberland portfolio."

Rayonier has demonstrated predictability and profitability in its performance fibers business. Moody's believes that the conversion of Jessup facilities to cellulose specialties from commodity fluff production, while entailing some risks, will benefit Rayonier's credit profile by providing more reliable cash flow.

The company maintains credit metrics typically found at higher rating levels. Fixed charge coverage has risen to 11.7x for 2011 from 9.9x in 2010, and while net debt has risen modestly from an especially low 1.0x at year end 2010, it remains very low at 1.6x at year end 2011. Moreover, secured debt is not a concern, despite a miniscule increase to 2.3% of gross assets as a result of Rayonier's acquisition of 250,000 timberland acres in 4Q11 for which it assumed a $105 million mortgage ($84 million at YE11). Finally, liquidity is in excellent condition, with cash flow and back up liquidity comfortably in excess of capital expenditures, debt maturities and other obligations, and all before consideration of nearly 2.5 million acres of unencumbered timberlands.

The key credit challenges for Rayonier include exposure to less predictable manufacturing and higher-and-better use (HBU) real estate businesses, and the cyclical nature of the paper and forest product industry. Moreover, with its top three customers representing more than half of its performance fibers sales, significant concentration risk is present. In addition, the low number of mills (2) operated by the firm entails event risk. Finally, the complex corporate structure with inter-company guarantees and debt issued from multiple entities is a concern. All else equal, Moody's believes that organizations with fewer entities and a single debt-issuing entity, preferably where most or all of the assets are held, pose the least risk.

According to the rating agency, the stable outlook represents its expectation that Rayonier will grow prudently while maintaining low leverage and high fixed charge coverage, as well as uphold its leadership in the specialty cellulose business.

Moody's indicated that Rayonier is solidly positioned at its current rating, and that further improvement in coverage and leverage metrics will be less of a ratings driver. Significant growth in size, $5 billion in gross assets and 3 million timberland acres, would be required for Moody's to consider further ratings improvement, as would an increase in revenues and EBITDA of $3 billion and $1 billion or greater, respectively. Rayonier would also need to demonstrate much improved customer diversity with the top three customers accounting for less than 25% of sales and the top ten less than half of sales. Finally, an upgrade is also predicated upon sustained fixed charge coverage above 10x as well as maintenance of net debt to EBITDA of less than 2x.

Loss of leadership and market share in Rayonier's cellulose specialties business would place negative pressure on the rating. Moody's would also likely revisit its ratings with a negative bias if fixed charge coverage fell below 8x or net debt / EBITDA rose above 2.5x. In addition, negative ratings pressure would result from timberland acreage below 2.5 million acres or a shift away from the firm's unsecured funding strategy.

The following ratings were raised with a stable outlook:

Rayonier Inc. -- senior unsecured shelf to (P)Baa1 from (P)Baa2; subordinate shelf to (P)Baa2 from (P)Baa3; preferred shelf to (P)Baa3 from (P)Ba1.

Rayonier Operating Company LLC -- senior unsecured shelf to (P)Baa1 from (P)Baa2; subordinate shelf to (P)Baa2 from (P)Baa3.

Rayonier Forest Resources, LP -- senior unsecured to Baa1 from Baa2; senior unsecured shelf to (P)Baa1 from (P)Baa2; subordinate shelf to (P)Baa2 from (P)Baa3.

Rayonier TRS Holdings Inc. -- senior unsecured shelf to (P)Baa1 from (P)Baa2; subordinate shelf to (P)Baa2 from (P)Baa3.

In its most recent action with respect to Rayonier, Moody's affirmed the timber REIT's ratings and revised the rating outlook to positive from stable on April 5, 2011.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Rayonier (NYSE: RYN) is headquartered in Jacksonville, Florida and is a real estate investment trust with three core businesses: Forest Resources, Real Estate and Performance Fibers. The company owns, leases or manages 2.7 million acres of timber and land in the United States and New Zealand. The company's holdings include approximately 200,000 acres with residential and commercial development potential along the Interstate 95 corridor between Savannah, Ga., and Daytona Beach, Fla. Its Performance Fibers business is a producer of specialty cellulose fibers, which are used in products such as filters, pharmaceuticals and LCD screens. Approximately 45 percent of the company's sales are outside the U.S. to customers in approximately 40 countries.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Christopher Wimmer, CFA
Vice President - Senior Analyst
Commercial Real Estate Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Nick Levidy
MD - Structured Finance
Commercial Real Estate Finance
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's raises Rayonier to Baa1; outlook revised to stable
No Related Data.
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