Moody's reviews Votorantim

Moody's Investors Service said it changed the direction of the review of Votorantim Celulose e Papel SA to downgrade from upgrade.

Ratings (Baa3 issuer ratings) were placed on review for upgrade in light of the potential merger with Aracruz Celulose SA, considering the expected operating synergies from the merger as well as the limited impact from Aracruz's currency derivatives losses.

The change reflects the downgrade of Aracruz's issuer ratings to Baa3 from Baa2 due to uncertainties about the size of derivatives losses and its impact on liquidity.

Ratings reflect the company's position as one of the lowest cost pulp producers globally, the potential liquidity from large timberland holdings and support of the Votorantim group (Baa3/positive), the agency noted.

These credit strengths are partially offset by the company's small size, its low operational diversity with concentration of production at one single site and risks associated with its capacity expansion projects and the negative free cash generation expected during its growth phase, Moody's said.

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