DBRS Places Norbord on Positive Trend

DBRS has today confirmed the Issuer Rating of Norbord Inc. (Norbord or the Company) at BB (low) with a trend change to Positive from Stable. The Positive trend reflects significant improvement in Norbord’s earnings and credit metrics due to improved oriented strand board (OSB) demand in North America, driven by the U.S. housing industry. It also reflects DBRS’s view on the sustainability of the current recovery in the U.S. housing industry and, in turn, strong credit metrics going forward. Norbord’s credit ratings continue to be supported by its leading and low-cost producer status, driven by continuing advancement in operating efficiencies, as well as the implied support from Brookfield Asset Management Inc. (BAM).

Consistent with the trend change on the Issuer Rating, the trend on the Senior Unsecured Notes (rated B) has also been changed to Positive from Stable. With respect to the Senior Secured Notes (rated BB), these notes were placed Under Review with Negative Implications earlier in 2013, due to a methodology change that would remove the one-notch benefit of the related recovery rating if DBRS’s updated assessment confirmed that the recovery rating was to remain at RR3 (for details, see the DBRS press release dated January 14, 2013). DBRS has changed the status to Under Review with Developing Implications, reflecting the fact that this review now has the added positive development of a base Issuer Rating with a Positive trend, thus making it possible that the rating could be confirmed at BB once all considerations are finalized.

Market conditions have strengthened significantly since the second half of 2012, with climbing North America OSB prices driven by continuing improvement in U.S. housing industry. As a result of the strong OSB pricings, Norbord has generated significantly stronger results and credit metrics in both the Q1 2013 and full-year 2012 periods. DBRS expects the recovery of the U.S housing industry to continue, with the North America OSB market conditions remaining solid. DBRS also expects Norbord to generate significantly stronger results and credit metrics in 2013 compared to 2012, driven by much higher OSB prices. Going forward, Norbord is well-positioned to benefit from a full recovery of the U.S. housing market, supported by a number of factors, including increasing household formation, pent-up demand and a stronger economy. DBRS expects the 2013 housing starts to reach near 1 million units.

Moreover, Norbord’s credit rating continues to be supported by its solid business profile as a leading and low-cost producer of OSB in North America, driven by continued advancement in operating efficiencies and the implied support of Brookfield Asset Management Inc. (BAM, rated A (low) by DBRS), its majority owner. In addition, Norbord is expected to maintain its leading and low-cost producer status with continuing capital investment programs.

In conclusion, if Norbord’s operating results and credit metrics remain solid in the near term, its Issuer Rating is likely to be upgraded by one notch. Furthermore, DBRS will endeavor to resolve all considerations concurrently in the near term, such that the Under Review situation can be finalized.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are DBRS Recovery Ratings for Non-Investment Grade Corporate Issuers (January 2013) and Rating the Forest Products Industry (June 2011), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.