Moody's rates Domtar bonds B1

Moody's Investors Service said it affirmed Domtar Corp. and Domtar Inc.'s existing credit ratings and assigned a B1 (LGD5, 75%) senior unsecured rating to Domtar's proposed $1.5 billion bond issues, which will replace Domtar Inc.'s existing bonds.

Domtar plans to issue $600 million of 7 7/8% notes due 2011, $350 million of 5 3/8% notes due 2013, $400 million of 7 1/8% notes due 2015 and $125 million of 9½% debentures due 2016.

Moody's affirmed Domtar's Ba3 corporate family rating, Ba1 senior secured rating and the SGL-2 speculative grade liquidity rating.

The outlook remains stable.

Moody's said the assigned B1 rating reflects the stronger credit profile of the issuing parent and the benefit of subsidiary guarantees, offset by effective subordination of the notes to the secured bank facilities.

The Ba3 corporate family rating is supported by Domtar's leading market position in North America, its favorable cost position in the industry and improved size and operating diversity resulting from the recent merger with Weyerhaeuser's fine paper business, according to the agency.

The ratings also reflect Domtar's modest credit protection metrics and the company's lack of product and geographic diversification, Moody's said.

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