Fitch Places Celulosa Arauco y Constitucion S.A. on Rating Watch Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has placed the 'BBB+' foreign and local currency IDRs and the 'AA(cl)' national scale rating of Celulosa Arauco y Constitucion S.A.'s (Arauco) on Rating Watch Negative. Fitch has also placed the 'BBB+' foreign currency IDR of Arauco's Argentine operating subsidiary, Alto Parana S.A., on Rating Watch Negative, as well as all bonds issued by Arauco and Alto Parana.

These rating actions follow today's announcement by Arauco that it had reached an agreement to purchase 100% of the shares of Flakeboard Company Limited, a panel company in the North American market, for US$242.5 million plus the assumption of existing debt. Flakeboard has seven production facilities in the U.S. and Canada. The acquisition of Flakeboard will give Arauco a leading position in MDF and particleboard in North America.

Fitch expects to resolve the Rating Watch within the next couple of months and after the closing of the transaction, which is still subject to regulatory approval. Key considerations will be whether the company receives equity from its parent, Empresas Copec, to finance a portion of the transaction and/or whether the outlook for pulp market prices improves. An improved outlook for pulp prices could result from the resolution of risks related to sovereign and bank debt in Europe, which has exacerbated market uncertainty.

For 2012, Fitch projects that Arauco's EBITDA will likely decline to about $1.075 billion from $1.165 billion during 2011. The weakening of Arauco's projected EBITDA is primarily a result of low pulp prices due to economic uncertainty in Europe and excess paper capacity in China. As a consequence of the investment in Flakeboard, plus additional investments in the range of $750 million to $900 million, Fitch projects that Arauco should have a negative free cash flow after dividends of about $600 million during 2012. As a consequence, Fitch projects that Arauco's net debt/EBITDA ratio will increase to 3.3x during 2012 from 2.5x during 2011.

During September 2011, Montes del Plata, Arauco's JV in Uruguay which is constructing a pulp mill, entered into a $454 million IDB loan agreement and a $900 million export credit agency agreement. Only $335 million of these loan amounts was drawn by Montes del Plata by the end of 2011; the majority will be drawn during 2012, as Montes del Plata intends to finish construction of its pulp mill and related port by the first half of 2013. Including the 50% of this debt that Arauco severally guarantees, Fitch's projected adjusted net debt/EBITDA ratio for Arauco should rise to about 3.8x during 2012 from 2.9x during 2011.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'National Ratings - Methodology Update' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

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