Moody's: Aracruz outlook stable

Moody's Investors Service said it has affirmed Aracruz Celulose SA's Baa3 global local currency issuer rating and its Aa1.br Brazil national scale issuer rating. At the same time, the rating agency has changed the outlook for the rating to stable from negative.

Moody's said the affirmation reflects Aracruz's position as the world's largest and most cost efficient producer of bleached eucalyptus (hardwood) market pulp, the geographic diversification of Aracruz's exports, consistent annual capacity utilization of near 100%, Aracruz's commercial focus on long term contracts with high value added and consumer product end-users, the company's adequate debt protection and liquidity measurements over a normal market pulp pricing cycle and the anticipated contribution from its Veracel subsidiary in 2006.

However, the rating also considers above-average volatility in cash flow and margins due to Aracruz's near exclusive participation in the pulp business, the company's history of maintaining a relatively high dividend payout ratio, start-up risks associated with the Veracel investment and a continued concentration of production at a single site.

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