Moody's cuts U.S. Timberlands Klamath notes to Caa3

Moody's Investors Service said it lowered the ratings of U.S. Timberlands Klamath Falls LLC's $225 million senior notes due 2007 to Caa3 from Caa1 and lowered the company's senior implied and issuer rating to Caa3 from Caa1.

The outlook is negative.

Moody's said the downgrade reflects the significant decline in timber prices and the company's timberland asset values in the past three years and the uncertain timing of a recovery of prices, thereby raising concerns about whether the asset values will be sufficient to support a refinancing of the bonds at maturity in 2007.

The ratings also recognize the company's inability to generate positive free cash over the last 12 months as well as minimal cash balances and lack of any committed credit lines, which have placed the company in a significantly tenuous liquidity position.

As a result, the company has been unable to make its interest payment that was due on Nov. 17. The company has stated that it is in the process of trying to monetize sufficient assets to make the interest payment before the end of the grace period which is about 30 days from Nov. 17.

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