DBRS Places Weyerhaeuser Under Review with Developing Implications

DBRS has today placed the ratings for Weyerhaeuser Company (WY or the Company) and its affiliates Under Review with Developing Implications following the announcement that the Company will sell its Containerboard, Packaging and Recycling business for $6 billion in cash. DBRS views the transaction as having a modestly positive impact on the Company’s financial profile, as WY is committed to using proceeds from the sale for debt reduction. However, WY will lose an important contributor to earnings and cash flow and will become less diversified. DBRS expects to remove WY from Under Review – Developing and confirm the rating upon the closing of the transaction (after shareholder and regulatory approval, expected in Q3 2008).

The Company’s key credit metrics are expected to measurably improve following the closing of the sale transaction. On a pro forma basis at December 31, 2007, debt-to-capital declined to 25% (from 45%) and cash flow coverage increased to 0.25 (from 0.14). While credit ratios remain relatively aggressive for the rating, WY’s significant timberland holdings contribute to its favourable business risk profile, which is above the industry average. Timberlands provide stable earnings and cash flow relative to building products, and are highly saleable even during recessions. WY owns 5.6 million acres of forest lands that have an estimated market value of more than $12 billion. The Company’s asset value-to-debt coverage ratio of 4.0 to 5.0 times (after debt is paid down from the proceeds of the aforementioned sale) provides a high level of liquidity and a financial risk that is also substantially lower than forest products industry averages.

Following the sale, WY will be focused exclusively on its timberlands, wood products, pulp and real estate operations, which weakens the Company’s business profile. The North American building products sector is close to the bottom of the cycle but any meaningful improvement is unlikely to occur until 2009. In the interim, lumber production curtailments and continued strength in pulp markets are expected to limit measurable earnings downside in 2008. In the event that WY generates weaker-than-expected earnings and cash flow over the near term, the rating could come under pressure once it is removed from Under Review status.

Note:
All figures are in U.S. dollars unless otherwise noted.
The rating for Weyerhaeuser Real Estate Company is based on unconditional guarantee for indebtedness provided by Weyerhaeuser Company.