S&P Lowers Rayonier (RYN) to 'BBB', Outlook Stable

Standard & Poor's Ratings Services said today it lowered its corporate credit rating on Rayonier Inc. (NYSE: RYN) to 'BBB' from 'BBB+'. The outlook is stable.

In conjunction with the lowering of the corporate credit rating, we also lowered our issue-level rating on Rayonier's senior unsecured debt to 'BBB' from 'BBB+'.

We also removed the ratings from CreditWatch, where we had placed them with negative implications on Jan. 27, 2014.

"The rating outlook is stable based on Rayonier's operating and financial flexibility; relatively steady earnings and free cash flow; and, in our view, moderate amount of debt considering the company's valuable timberland assets," said Standard & Poor's credit analyst Thomas Nadramia. "We expect credit measures to remain appropriate for the ratings--specifically, debt to EBITDA of about 2.5x and FFO to debt of about 30% on average for the next two to three years."

We could downgrade Rayonier if the company adopted a more aggressive financial policy (debt financed dividends or acquisitions) with debt to EBITDA above 3.5x and FFO to debt of less than 20% on a sustained basis. We would be less likely to lower the rating in the event of a temporary increase in leverage to the mid 3x area during cyclical troughs, assuming Rayonier maintained its very strong asset protection levels and adjusted its dividends in line with earnings.

We view an upgrade to be unlikely because Rayonier is not expected to maintain leverage appropriate for our modest financial profile category (i.e., less than 2x debt to EBITDA). EBITDA would have to exceed our 2015 forecast by 35% or more for this to occur. A strengthening in Rayonier's business risk profile to strong is also viewed to be unlikely over the next year given its closest timber REIT peers with substantially larger timberlands have similar "satisfactory" business risk assessments.

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