Moody's sees leveraged forest products companies still under pressure

Moody's Investors Service said it expects the ratings of leveraged finance North American forest product companies will remain under negative pressure throughout 2003, with the outlook possibly improving for 2004.

For 2004, Moody's believes rating actions in the sector could begin to stabilize, as an improved pricing environment, lower interest costs and higher capacity utilization allow companies to show better coverage and financial metrics.

But a recovery of the U.S. dollar, companies failing to maintain discipline in production, additional debt-financed consolidation and renewed weakness in the U.S. economy could renew the pressure, the rating agency cautioned.

For leveraged packaging companies, Moody's sees a stable outlook because issuers have managed, with few exceptions, to stabilize their operations.

The industry has also benefited from cost rationalizations and containment strategies implemented during the last few years.

Behind the stable outlook is improved profitability, somewhat enhanced liquidity, improved operating fundamentals, judicious capital spending and the welcome return of free cash flow - albeit modest in most cases, but available for debt service nonetheless, Moody's said.

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