DBRS Downgrades Weyerhaeuser and Affiliates to BBB, Stable Trends

DBRS has today downgraded the ratings of Weyerhaeuser Company (WY or the Company) and its affiliates to BBB from BBB (high) and changed the trends to Stable from Negative. The rating action reflects that the Company’s financial profile has been weak for an extended period and WY is not likely to make meaningful progress in repairing its financial profile in the near term due to the still depressed conditions in the U.S. housing industry. The Stable trend recognizes that the Company’s performance has passed the trough of the current down cycle and WY is well positioned to benefit from an eventual recovery in the housing market although the timing is uncertain.

Three of the Company’s businesses (timberland, wood products and real estate) are heavily exposed to the U.S. housing industry and WY’s operating performance has suffered in line with the poor market conditions in the last few years. The Company has started to turn around in 2010 as anticipated but the momentum appeared to have stalled. Additionally, WY’s financial profile is still well below the range acceptable to the BBB (high) rating. DBRS notes that residential construction activities in the US seemed to have bottomed in 2009; however, a meaningful recovery is still uncertain. Recent housing market data remains weak and inconclusive. DBRS believes that it is unlikely that the Company would be able to boost operating performance under current soft market conditions and restore its financial profile to be compatible with a BBB (high) rating in the next 18 to 24 months.

Despite the still-aggressive debt coverage ratios, the BBB rating is supported by the Company’s solid business profile. The Company has a sizable timberland operation and is a global leader in silviculture with strong expertise in improving forest productivity (growing sawtimber as quickly as possible). WY is a large manufacturer and distributor of wood products in North America and Asia, a real estate developer in selected metropolitan areas in the United States and one of the world’s largest producers of absorbent fluff pulp.

The Company is well positioned to benefit from the next upturn. The global demand for logs has been on the rise despite the weak U.S. housing market. Increasing construction activities in emerging markets especially China has boosted the demand for and the prices of logs. The ongoing urbanization of emerging markets is expected to underpin a long term growth trend for logs. Additionally, the Company is well situated geographically to supply the growing demand in Asia. The wood products and real estate segments are currently impacted by the weak U.S. housing market. Although the timing is uncertain, the housing market will return to the long-term growth trend driven by population growth and rising household formation. Residential construction activities will rebound and the demand for lumber will return to more normal levels. Anticipated harvest curtailments as a result of the mountain pine beetle epidemic in the B.C. interior will tighten supply. This would significantly boost sawlog and lumber prices during the upturn of the next building cycle. Finally, the Company’s cellulose fiber business would benefit from rising demand for diapers and personal care products driven by growth and improving economic conditions in emerging markets. Even though new capacities are being added constantly, the demand for fluff pulp is expected to exceed supply in the next few years. WY has the potential to significantly increase earnings and cash flows in the next forest product industry upturn.

The Company’s leverage is aggressive for a cyclical company but is still acceptable for the BBB rating supported by its strong liquidity position. The Company has large timberland holdings valued at near three times the Company’s gross debt. These timberland assets can be easily monetized to raise funds, even in depressed markets, adding to the Company’s financial flexibility and providing security to debt holders. With cash and unused credit facilities totaling $2.46 billion at the end of March 2011, the Company has adequate liquidity to support its operating needs through the downturn in the industry.

DBRS expects the Company’s operating performance in 2011 to be comparable to 2010 supported by stronger timberland and cellulose fibers results offset by continuing weakness in wood products and real estate. DBRS expects the Company’s rating to remain stable in the near term. The Company’s financial profile is not likely show meaningful improvement until the U.S. housing industry rebounds.

Notes: All figures are in U.S. dollars unless otherwise noted.

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