DBRS Changes TimberWest to Under Review - Developing

DBRS has today changed the status of TimberWest Forest Corp. (TWF or the Company) from Under Review with Negative Implications to Under Review with Developing Implications. The Company was placed Under Review with Negative Implications on October 30, 2008, due to the concern that substantial debt maturities and limited cash availability may adversely affect TWF’s ability to successfully refinance debt maturities in the subsequent 12 months. DBRS assumes that the recently announced financing and credit amendments will be successfully completed and liquidity and near-term debt maturities will no longer be a challenge. When the new debentures and credit amendments are in place, DBRS will confirm the rating.

TWF has announced a rights offering that will entitle existing unitholders to purchase up to $50 million aggregate principal amount of 9% extendible convertible debentures of the Company. The Company also announced that it had entered into an agreement with two wholly-owned subsidiaries of British Columbia Investment Management Corporation (together, BCIMC) to purchase $100 million of convertible debentures (Private Debentures) of the Company having economic terms similar to the debentures offered under the rights offering. BCIMC has also committed to purchase an additional amount of Private Debentures equal to the aggregate principal amount of the debentures not subscribed for under the rights offering. The debentures issued under the rights offering will be unsecured. However, the Private Debentures will be secured by all of the present and after-acquired personal property of the Company. TWF also announced that it has negotiated amendments to its existing credit facilities that would provide the Company with what it believes is sufficient flexibility to operate through the current market downturn. The credit amendments will become effective when the rights offering and private placement have been completed and $75 million of the combined proceeds of the debenture issue has been used to repay a portion of the Company’s existing credit facilities. The closing of the rights offering and the private placement is expected to occur in February 2009 and is subject to customary closing conditions and the receipt of necessary regulatory approvals, including the approval of the TSX. The debentures will initially mature on or about February 27, 2009. If the credit amendments have become effective before this date, the maturity date of the debentures will be automatically extended to the fifth anniversary of the closing of the rights offering.

DBRS considers the announced financing and credit facility amendments to be a positive development. With weak earnings and cash flows forecasted for at least the next two years, the Company did not expect to be compliant with its current debt covenants when it filed its fiscal 2008 financials. DBRS expects the credit amendments and debenture financing to remove this problem. As previously announced, TWF will still seek unitholder approval on December 19, 2008 for a modification to the Series A Subordinate Note component of the Company’s stapled units which will move to a variable rate of 2% to 12% in lieu of the current 12% fixed rate. TWF also intends to defer the January 2009 distribution and subsequent distributions until market conditions improve.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating the Forest Products Industry which can be found on our website under Methodologies.

This is a Corporate rating.