Oct. 12, 2009 (Business Wire) -- Fitch Ratings has downgraded the Foreign currency and local currency Issuer Default Ratings (IDR) of Votorantim Celulose e Papel (VCP) as follows:
--IDR to 'BB' from 'BB+';
--National Scale Rating to 'A+ (bra)' from 'AA- (bra)'.
Fitch has simultaneously upgraded the following ratings of Aracruz Celulose S.A. (Aracruz):
--Foreign and local currency IDR to 'BB' from 'BB-';
--National Scale Rating to 'A+ (bra)' from 'A (bra)'.
The Rating Outlook for both VCP and Aracruz is Stable.
Rating Actions Reflect Credit Convergence:
VCP and Aracruz's respective ratings of 'BB' and 'A+ (bra)' reflect the linkage of the credit quality of these two companies during the past nine months as a result of numerous transactions that have resulted in VCP increasing its ownership of Aracruz's voting shares to 99.6% from 28%. By the end of 2009, Aracruz is expected to be merged into VCP, and the company will be renamed Fibria S.A. It will have only one class of shares and will be jointly controlled by Banco Nacional de Desenvolvimento Economico e Social Participacoes S.A. (BNDESPar) and Votorantim Industrial S.A (VID) with stakes of 33.8% and 29.3%, respectively.
Leverage to Remain High through 2011:
VCP and Aracruz had a combined net debt of USD5.4 billion at the end of 2008, an increase from USD2.2 billion at the end of 2007. The increase was due to USD2.1 billion of derivative losses at Aracruz during 2008 and about USD 1.4 billion of capital expenditures. The companies' combined debt levels continued to climb during 2009 as VCP increased its ownership stake in Aracruz to BRL5.6 billion. Steps taken by VCP and Aracruz during 2009 have only partially offset the increase in debt. They include the issuance of BRL3 billion of cash equity by VCP and the sale by Aracruz of its Guaiba unit for USD1.430 billion, of which USD 1 billion will be received in 2009 and used to pay down debt.
The combined company's EBITDA is expected to fall to about USD900 million during 2009 from approximately USD1.1 billion during 2008 due to the sharp decline in pulp prices during the first half of 2009. As a result, Fitch expects VCP's and Aracruz's combined net debt/EBITDA ratio to be about 6.2 times (x) during 2009, an increase from 5.0x during 2008, and substantially higher than the average ratio of 2.3x between 2005 and 2007. Without the sale of VCP's paper assets during 2010 or substantially higher pulp prices, the combined net leverage of VCP and Aracruz should be about 4.0x during 2010. The decline in leverage during 2010 will be driven by a full year's output of pulp from the company's Tres Lagoas mill, which began operations during the first half of 2009, and the receipt of USD430 million of cash from the sale of Guaiba.
