DBRS Confirms Weyerhaeuser Ratings

DBRS has today confirmed the ratings for Weyerhaeuser Company (WY or the Company) and its affiliates following the successful divestiture of its Containerboard, Packaging and Recycling business for $6 billion in cash as expected. DBRS has also removed the Company from Under Review with Developing Implications where it was placed on March 17, 2008. DBRS views the divestiture 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.

On a pro forma basis at June 30, 2008, DBRS estimated debt-to-capital declined to 28% (from 47%) and interest coverage increased to 2.1 (from 0.7). The cash flow coverage ratio remained below 0.10, reflecting low earnings and cash flow generation at the trough of the business cycle. 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 to 5 times (after debt pay down from the proceeds of the aforementioned sale) provides a high level of liquidity and a financial risk that is also substantially less 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 a meaningful improvement is unlikely to occur until late-2009 or 2010. In the interim, lumber production curtailments and continued strength in pulp markets are expected to limit measurable earnings downside in 2008-2009. In the event that WY generates weaker-than-expected earnings and cash flow over this time period, the rating could come under pressure.

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