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Global Credit Research - 21 Apr 2011
US$300 million of rated debt affected
Toronto, April 21, 2011 -- Moody's Investors Service affirmed West Fraser Timber Co Limited's
(West Fraser) ratings and changed the company's rating outlook to positive.
The speculative grade liquidity rating was upgraded to SGL-1 from
SGL-3. West Fraser has a Ba1 corporate family rating and
its senior secured notes due 2014 are also rated Ba1 (LGD3, 42%).
The positive outlook reflects West Fraser's increased financial
flexibility and Moody's expectation that the company's financial performance
will remain strong. The company's financial profile and liquidity
position could support a modest upgrade if West Fraser is able to sustain
its recent improvements. The upgrade of the SGL rating reflects
the much-improved liquidity of the company.
West Fraser's Ba1 corporate family rating primarily reflects the company's
cost competitive vertically integrated operations, the company's
leading market position as the world's largest lumber producer,
as well as the company's solid track record in maximizing the productivity
of its asset base. Reduced debt and improved pricing and demand
for the company's primary products, lumber and pulp, has helped
the company restore its credit protection metrics. Improved lumber
demand from Asia and relatively strong demand from Canada has enhanced
the company's financial performance; further upside is anticipated
when US housing starts move closer to trend levels. Credit challenges
include the inherent volatility of the company's wood products and market
pulp businesses, as well as challenges from the pine beetle infestation
including higher processing costs and the longer term uncertainty regarding
fiber availability due to reduced harvest levels.
West Fraser has strong liquidity supported by approximately C$450
million of availability (December 2010) under its C$500 million
revolving credit facility that matures December 2014. The company
has a cash balance of C$163 million (December 2010) and Moody's
estimates break-even free cash flow generation with no debt maturities
over the next 12 months. The company is expected to remain in compliance
with its financial covenants over the next 12 months.
An upgrade would depend on a sustained improvement in the company's financial
performance. Quantitatively, this could result if normalized
RCF/TD and (RCF-Capex)/TD measures exceed 20% and 12%,
respectively, on a sustainable basis, while maintaining good
liquidity. The company could face a potential pullback if lumber
or pulp supply is not properly managed with respect to demand.
The ratings or outlook could be pressured if lumber or pulp prices fall
materially causing deterioration in the company's liquidity profile or
if (RCF-Capex)/TD measures drop to 5% for a sustained period
..Issuer: West Fraser Timber Co. Ltd.
.... Speculative Grade Liquidity Rating,
Upgraded to SGL-1 from SGL-3
....Senior Unsecured Regular Bond/Debenture,
Upgraded to LGD3, 42% from LGD3, 46%
..Issuer: West Fraser Timber Co. Ltd.
....Outlook, Changed To Positive From
The principal methodology used in rating West Fraser was the Global Paper
and Forest Products Industry Methodology, published September 2009.
Other methodologies used include Loss Given Default for Speculative Grade
Issuers in the US, Canada, and EMEA, published June
Please see ratings tab on the issuer/entity page on Moodys.com
for the last Credit Rating Action and the rating history.
Headquartered in Vancouver, British Columbia, West Fraser
is an integrated producer of lumber (56% of 2010 sales),
pulp and newsprint (30% of 2010 sales) and wood panels (14%
of 2010 sales). West Fraser's operations consist of 28 sawmills,
3 plywood facilities, 2 medium density fiber mills, a laminated
veneer facility, 4 pulp mills and a 50% joint venture interest
in a newsprint mill. The company is currently the largest lumber
producer in the world and the largest plywood producer and the third largest
pulp producer in Canada.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Canada Inc.
Moody's revises West Fraser's outlook to positive; affirms ratings
70 York Street
Toronto, ON M5J 1S9
No Related Data.
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