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Rating Action:

Moody's rates GP's new $1.0 b snr unsec'd gt'd notes Ba3

11 Dec 2006
Moody's rates GP's new $1.0 b snr unsec'd gt'd notes Ba3

Ratings on $14 billion of existing debt instruments affirmed; outlook remains stable

Toronto, December 11, 2006 -- Moody's Investors Service assigned a Ba3 rating to Georgia-Pacific Corporation's (GP) proposed $1.0 billion senior unsecured guaranteed notes as well as Ba2 ratings to its add-on term loan and amended revolving credit facility. The notes are being issued as part of a refinancing transaction that will see an existing $2.25 billion second lien term loan C repaid from the proceeds of: a) the new $1.0 billion notes; b) a $1.0 billion senior secured term loan B that is effectively an add-on to an existing Ba2-rated term loan B; and c) draw-down of the entire amount of a $250 million increase in the company's Ba2-rated senior secured revolving credit facility. With the transaction not affecting the relationship between total debt and cash flow, GP's corporate family rating was affirmed at Ba3 and the outlook remains stable.

In assessing the ratings impact on the individual components of the debt structure, there are five points of note: 1) the transaction contemplates a concurrent legal entity reorganization that simplifies the company's internal structure; 2) there is the potential of future legal entity reorganizations and intra-company asset sales; 3) the new notes benefit from upstream guarantees from a substantial proportion of the company's operating subsidiaries; 4) senior secured credit commitments increase by $1.25 billion to $10.25 billion; and 5) the $2.25 billion second lien credit facilities are replaced in the waterfall by the $1.0 billion in new notes, thereby reducing the value of that component by $1.25 billion.

The impact of these points is:

I: The nearly 14% increase in senior secured claims is at the limit of what Moody's loss given default rating methodology can tolerate without dilution of either or both of security coverage and the loss absorption capacity. Accordingly, the senior secured ratings on the $2.0 billion revolving credit facility (increased from $1.75 billion), the $2.0 billion term loan A and the $6.25 billion (aggregate value increased by $1.0 billion) term loan B remain at Ba2.

II: The new $1.0 billion notes replace the $2.25 billion second lien credit facility in the waterfall. While unsecured, since they benefit from a robust system of operating company guarantees, they are ranked at the same Ba3 level as the instruments they replace in the waterfall.

III: With the dollar value impact of 4) (an increase of $1.25 billion) and 5) (a decrease of $1.25 billion) above netting to zero, there is no change to the claims ranking ahead of the existing senior unsecured notes, and therefore no change in their rating.

IV: With GP's status as a private company and given its ability to reorganize its legal entity structure and related asset and cash flow attribution, the transaction highlights that there is no practical means of assessing the ongoing impact of structural features that may advantage/disadvantage bonds issued by or guaranteed by Fort James Corporation. Given the relatively nominal $41 million aggregate value of such bonds and the fact that nearly half of that value represents bonds that mature within a year, Moody's will withdraw the applicable ratings.

Assignments:

..Issuer: Georgia-Pacific Corporation

....Senior Secured Bank Credit Facility, Assigned a range of 37 - LGD3 to Ba2

....Senior Secured Bank Credit Facility, Assigned a range of 37 - LGD3 to Ba2

....Senior Unsecured Regular Bond/Debenture, Assigned a range of 46 - LGD3 to Ba3

Withdrawals:

..Issuer: Georgia-Pacific Corporation (Old)

....Senior Unsecured Regular Bond/Debenture, Withdrawn, previously rated 47 - LGD3

GP's corporate family rating continues to be supported by its significant aggregate scale which provides superior access to end markets and customers, and enhanced flexibility to rationalize operations in a downturn should it be required. The rating is also supported by its product line diversity, which provides the potential for a less volatile aggregate cash flow stream and an increased potential of being able to generate cash by divesting of discrete business lines should the need arise. While Moody's views all of the company's key segments as having margins that vary over time, recent tissue segment margin expansion may prove to be sustainable if the key participants continue to exercise discipline to neutralize the influence of excess capacity. GP's very significant presence in this market increases this likelihood. Also, GP's relatively low manufacturing costs in its key product lines is seem as an added strength, providing defensible market positions in the event of a market downturn. GP also gains from sponsorship benefits provided by Koch.

Georgia-Pacific Corporation (GP), headquartered in Atlanta, Georgia, is a privately owned global leader in tissue and other consumer products, and has significant operations in building products and paper-based packaging.

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

Toronto
William Wolfe
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

No Related Data.
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