DBRS Downgrades AbitibiBowater and Subsidiaries

DBRS has downgraded the ratings on AbitibiBowater Inc. (ABH or the Company) and its subsidiaries, Abitibi-Consolidated Inc. and Abitibi-Consolidated Company of Canada to D, following today’s announcement that the Company has decided not to pay certain amounts of principal and interest on affected unsecured notes, secured notes and term loan that will be due before the meetings of noteholders and lenders scheduled for April 30, 2009. DBRS has also removed the ratings from Under Review with Negative Implications, where they were placed on October 30, 2008. This rating action follows the Commercial Division of the Superior Court of Quebec in Montreal granting an interim court order under the Canada Business Corporations Act in connection with the Recapitalization by the Company announced on March 13, 2009. (See DBRS press release on March 13, 2009 for details.) The downgrade to D is consistent with DBRS methodology. In keeping with DBRS policy, all recovery ratings assigned to the above mentioned companies are being discontinued given the downgrade to D. (For information on DBRS recovery rating opinions on ABH prior to today’s action, please see press release dated March 3, 2009.)

Concurrently, DBRS has downgraded the Issuer Rating of Bowater Inc. to C from CCC (high) and the Senior Debentures rating of Bowater Canadian Forest Products Inc. to C (low) from CCC. The recovery rating is confirmed at RR5. These companies remain Under Review with Negative Implications. The rating downgrades reflect the downgrade of the related companies to D. Bowater Inc. and Bowater Canadian Forest Products Inc. are not included in ABH’s recapitalization but are subject to a separate debt exchange (as outlined in a DBRS press release dated February 9, 2009). DBRS views many aspects of the Bowater exchange as disadvantageous to the current bondholders for the following reasons: the bondholders that choose to accept the exchange offer will receive less than the original amount and those that do not participate or are not subject to the exchange offer (Bowater Canadian Forest Products Inc.) will effectively be subordinate to the newly offered debt. Given that the proposed exchange does not fully reimburse bondholders, DBRS expects that, upon completion of the exchange, the debt that is exchanged will be placed in a default status in accordance with DBRS policy.

DBRS recognizes the benefits of a successful bond exchange as debt will be reduced, capitalization will be enhanced and the Company will benefit from potential gains. However, the level of any benefits has yet to be determined. Although the successful execution of an exchange of a meaningful amount of bonds should provide near-term relief, DBRS remains concerned that the deteriorating newsprint, specialty paper and building products markets and a prolonged economic slowdown negatively impacts the prospect for a quick recovery of the Company’s financial performance.

The Company also announced today that respective meetings of the affected unsecured notes, secured notes and lenders have been called for April 30, 2009. At the meetings, holders of the three classes of affected stakeholders will be asked to vote on the Plan of Arrangement relating to the Recapitalization. The resolutions of affected unsecured notes, secured notes and lenders shall be considered to be approved by the affirmative vote of not less than two-thirds of the votes cast on each resolution. However, the final order from the Court to proceed with the implementation of the Plan of Arrangement may be sought whether or not the arrangement resolutions are adopted.

Notes:
All figures are in U.S. dollars unless otherwise noted.
The ratings are based on public information.

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

This is a Corporate Rating.