(Rio De Janeiro, Brazil, Sept. 29, 2016) Fitch Ratings has affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) for Celulosa Arauco y Constitucion S.A. (Arauco) at ‘BBB’ and the National long-term rating at ‘AA-(cl)’. The Rating Outlook is revised to Negative from Stable. A full list of rating actions follows at the end of this release.
The revision of the Outlook to Negative reflects Fitch’s base case projections that Arauco’s net leverage will remain above 3.0x in 2016 and 2017, which is materially higher than previously projected since it includes about two years of full operations of the Montes del Plata pulp mill. Despite higher pulp sales volume, the company’s results were impacted negatively by strengthening of the U.S. dollar, soft pulp prices and weaker demand from the panel division. If net leverage falls to below 3.0x during 2017, the Negative Outlook would likely be revised to Stable.
KEY RATING DRIVERS
Strong Business Position
Arauco’s ratings are underpinned by its strong business position, as the second-largest market pulp company in the world. Arauco has one of the lowest cost-structures in the industry, which allows it to generate strong operating cash flows during market downturns. The company is also the second largest producer of panels in the world and has a strong presence in the lumber market. Arauco’s competitive cost advantages in these products are viewed to be sustainable because of its productive forest plantations, modern production equipment, energy self-sufficiency, and low transportation costs due to the close proximity of its plantations, mills, and ports.
KEY ASSUMPTIONS
Fitch’s key assumptions within the rating case for Arauco include:
–Pulp sales volume between 3.6 million tons and 3.8 million tons.
—Hardwood prices between USD550 and USD600 per ton during 2016-2017.
–USD620 million CAPEX in 2016 and USD670 million in 2017.
–CFFO between USD750 million and USD900 million in 2016-2017. (Source: press release)