Fitch Affirms Smurfit-Stone's Ratings; Outlook Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Smurfit-Stone Container Corporation (SSCC) as follows:

--Issuer Default Rating (IDR) at 'B+';

--Secured bank debt at 'BB+/RR1';

--Senior unsecured debt at 'B+/RR4';

--Preferred stock at 'B-/RR6'.

The Rating Outlook remains Negative.

SSCC is facing significant cost inflation challenges in what looks to be a weak year for North American box demand and an expensive year for SSCC's capital budget. The company is projecting $250 million in cost inflation in 2008 and benefits of $80 million-$95 million from savings in the final year of its Transformation Plan. To hang onto progress made over the last three years, the gap needs to be filled by higher prices for its products, and much depends on the success of a $55/ton price increase slated for this month which failed in the first quarter. SSCC will also be spending more money this year, around $400 million, for high-speed corrugators and two greenfield operations.

The Negative Rating Outlook heralds from an alternate view for a much higher cost inflation in weaker than anticipated North American markets. Skyrocketing oil and natural gas prices and a projected resumption of rising recycled paper costs due to demand from China are the expected added cost pressures. Chinese capacity coming on-stream which could weaken U.S. linerboard exports could also oversupply North American markets. Both events could undermine SSCC's ability to grow EBITDA, cash flow and debt reduction. For 2008 Fitch expects that EBITDA will be less than last year's $760 million, and that net debt (including asset securitizations)/EBITDA could retrench toward 6 times (x) if SSCC is forced to borrow to support its capital budget. The possibility of a ratings downgrade would exist if leverage metrics approach a 7x net debt/EBITDA without improving market conditions.

SSCC is a key North American producer in the corrugated box markets with 16 paper mills and 118 corrugated container plants in North America. The company produces 7 million tons annually of containerboard and sells more than 70 billion square feet of boxes to home appliance, beverage, food, pharmaceutical, computer, machinery and furniture manufacturers.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.