Moody's upgrades Domtar

Moody's Investors Service said it upgraded Domtar Corp.'s corporate family rating to Ba2 from Ba3.

The action reflect improved credit protection metrics, progress made in integrating Domtar and Weyerhaeuser's fine paper assets, management's commitment to debt reduction and expectations of continued strong operating and financial performance, according to the agency.

Domtar's senior secured rating was upgraded to Baa3 (LGD2, 21%) from Ba1, senior unsecured rating to Ba3 from B1 and speculative grade liquidity rating to SGL-1 from SGL-2.

The outlook is stable.

Domtar's strengths include the company's significant position as the largest fine paper producer in North America, its favorable cost position as well as its improved size and operating diversity from the merger with Weyerhaeuser's fine paper business, according to the agency.

Offsetting these strengths are declining demand for fine paper and rising input costs that may constrain projected margin expansion and free cash flow generation, Moody's said, as well as lack of product and geographic diversification, and the volatile pricing for fine paper and lumber.

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