S&P affirms Cellu Tissue at B

Standard & Poor's said it affirmed its ratings, including the B corporate credit rating, on Cellu Tissue Holdings Inc. and removed all ratings from CreditWatch. The outlook is stable.

The CreditWatch placement followed the announcement that Cellu Tissue would be acquired by Kohlberg & Co. LLC and merged with Thilmany LLC (B+/Stable/--).

The affirmation and CreditWatch removal reflect the termination of the merger agreement, S&P said. S&P said it had expected the proposed merger to result in a slightly stronger business profile for the combined company.

The ratings on Cellu Tissue reflect the company's very aggressive financial policies, modest sales, cash flows and equity base, highly competitive market conditions, customer concentration and competition and declining demand for one of its key products, machine-glazed paper, S&P said.

These risks outweigh the company's good position in some niche product categories, the benefit of recent operating cost reductions and capacity to increase sales volumes, S&P said.

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