Moody's may downgrade Aracruz Celulose

Moody's Investors Service said it placed Aracruz Celulose SA's Baa2 global-scale issuer rating and Aaa.br Brazilian national scale issuer rating under review for possible downgrade following the announcement of some R$1.95 billion in losses from currency derivatives transactions as well as the planned merger into Votorantim Celulose e Papel SA.

The agency said Aracruz's ratings could be downgraded if it experiences cash losses greater than the announced $1 billion of exposure to target forward derivatives contracts or if the merger with Votorantim Celulose is not finalized.

The ratings could be confirmed if the merger with Votorantim Celulose is consummated and derivatives losses and other sources of increased leverage, such as the acquisition financing and capex, do not cause the expected 2009 combined retained cash flow-to-debt ratio to drop significantly below 20%, Moody's said.

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