Fitch drops Aracruz to junk

Fitch Ratings said it downgraded Aracruz Celulose SA's local-currency issuer default rating to BB+ from BBB, foreign-currency issuer default rating to BB+ from BBB and national scale rating to AA-(bra) from AA+(bra).

Ratings have been placed on Rating Watch negative along with Votorantim Celulose e Papel's local-currency issuer default rating of BBB-, foreign-currency issuer default rating of BBB- and national scale rating of AA (bra).

Fitch said the actions follow the company's announcement that the fair value of its derivative position was a negative $1.02 billion as of Sept. 30.

This position exposes the company to heightened market volatility and potential further losses should the Brazilian real continue to weaken against the dollar, the agency noted.

The downgrades reflect an expectation that the company's leverage will increase materially as it works to limit or eliminate its derivative exposure and that it may have to delay some of its key expansion projects, the agency said.

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