Moody's downgrades Bowater

Moody's Investors Service said it downgraded Bowater Inc.'s corporate family and senior unsecured debt ratings to B1 from Ba3, its industrial and pollution control bonds to B1 from Ba3 and Bowater Canada Finance Corp.'s senior unsecured guaranteed notes to B1 from Ba3. Moody's also affirmed the company's SGL-2 speculative grade liquidity rating.

The outlook was revised to stable from negative.

The downgrade reflects Moody's opinion that sustainable margin expansion will be limited, that debt levels are not likely to dramatically decline and that current credit metrics will, on average, continue to prevail over the near to mid term.

Moody's said Bowater's ratings are influenced by migrating Canadian currency exchange rates and a legacy debt load resulting from debt-financed consolidation efforts. However, with poor profitability resulting from a long period of excess paper supply that suppressed prices, consolidation gains did not materialize, and the company was not able to normalize its debt load.

Factors supporting the rating include reasonable cost competitiveness and some diversity afforded by exposure to pulp and lumber, the agency said. Bowater will modestly reduce its debt load from the proceeds of upcoming timberland sales.

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