Moody's rates Domtar loan Ba1

Moody's Investors Service said it assigned a Ba3 corporate family rating and SGL-2 speculative grade liquidity rating to Domtar Corp. and a Ba1 rating with a loss-given-default assessment of LGD2 (21%) to its new $1.55 billion senior secured credit facility. The B2 senior unsecured bonds and debentures rating of subsidiary Domtar Inc. was affirmed.

The outlook is stable.

Domtar Inc. will combine with Weyerhaeuser Co.'s fine paper business in early March to form a new company, Domtar Corp. The new company will make a $1.35 billion cash payment to Weyerhaeuser as partial consideration for the assets being contributed and will fund the cash payment with the proceeds of a new $800 million term loan, plus the approximately $500 million in proceeds from Domtar Inc.'s divestiture of its 50% interest in Norampac Inc., with a portion of Domtar Inc.'s softwood lumber duty refund making up the balance.

The agency said that because Domtar Inc. will be part of a company whose consolidated credit profile is stronger than its own, there is a positive rating influence on Domtar Inc.'s senior unsecured notes and debentures.

However, this is offset by the combination of security arrangements afforded its new parent company's credit facilities and the lack of protection provided by indentures to prevent Domtar Inc.'s assets and cash flow from being used to service Domtar Corp.'s obligations, Moody's said.

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