Fitch Affirms CMPC at 'BBB+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the foreign and local currency Issuer Default Ratings (IDRs) for Empresas CMPC S.A. (CMPC) at 'BBB+'. The Rating Outlook is Stable. Fitch has also affirmed the foreign currency IDR for Inversiones CMPC at 'BBB+' with a Stable Outlook.

Inversiones CMPC is a wholly-owned subsidiary of CMPC and is incorporated in the Cayman Islands as an exempted limited liability company. All of Inversiones CMPC's debt is unconditionally guaranteed by CMPC. Its ratings have been linked to those of CMPC through Fitch's Parent and Subsidiary Rating Linkage Criteria. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Excellent Regional Businesses

CMPC's credit ratings reflect the company's strong business positions within Latin America. CMPC is the leading tissue producer in Chile, Peru, Argentina and Uruguay and has a growing presence in markets such as Brazil and Mexico. The company's strong market position in tissue, which accounted for 23% of its EBITDA during the last 12 months (LTM) ended June 30, 2015, is the result of the strong brand equity of its products, its low production cost structure, and strong distribution network. During July 2015 the new Altamira tissue plant started operations. This plant with 50,000 tons annual capacity involved a USD96 million investment and will increase to 134,000 tons operational capacity in Mexico. CMPC is also the largest producer of packaging paper, boxboard, corrugated boxes and multiwall bags in Chile. Its paper and paper products divisions accounted for an additional 15% of EBITDA. The company's position in the Chilean market for these products is viewed to be sustainable because of its modern equipment and distribution systems.

Growing Global Pulp Presence

The ratings for CMPC further factor in the company's solid position in market pulp. The company sold about 2.1 million tons of market pulp during the LTM ended June 30, 2015 placing it amongst the top producers of market pulp globally. These sales generated about 47% of the company's EBITDA. CMPC's presence in market pulp has grown as it finished its USD2.1 billion investment to add 1.3 million tons of additional eucalyptus market pulp production capacity in Brazil (Guaiba II). Guaiba II started operations on May 7, 2015 and its target is to achieve 500,000 tons of sales in 2015, during its ramp-up process. The company's cash production costs are amongst the lowest in the world for both hardwood and softwood pulp, ensuring its long-term competitiveness.

Leverage to Decline

CMPC's net debt increased to USD3.7 billion as of June 30, 2015 from USD3.5 billion in 2014. The increase in debt was primarily related to more than USD1.9 billion of expenses related to the construction of the Guaiba II pulp mill. Lower volumes of softwood and hardwood, lower softwood prices, and higher operational expenses associated to the ramp-up of Guaiba II line resulted in a LTM EBITDA of USD945 million. As of June 30, 2015, the company's net debt/LTM EBITDA ratio was 4.0x, which is above 3.6x as of Dec. 31, 2014 and CMPC's average net leverage of 2.4x between 2007 and 2011. Fitch estimates that the Guaiba II mill should enhance the company's annual EBITDA by between USD250 million and USD500 million per year, depending upon the point in the cycle, once it becomes operational. At that time, leverage should range between 1.5x and 2.75x depending upon the pricing environment.

Significant Forestry Investments

A key credit consideration that further enhances CMPC's credit profile is its ownership of about 1 million hectares of land throughout Chile, Brazil, and Argentina, where the company developed about 652,000 hectares of forestry assets. The plantations are valued at more than USD4.8 billion. Importantly, the nearly ideal conditions for growing trees in the region make these plantations extremely efficient by global standards and give the company a sustainable advantage in terms of cost of fiber and transportation costs between forest and mills.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for CMPC include:

--Hardwood pulp volume of 1.9 million tons in 2015 and 2.7 million tons in 2016, once the Guaiba pulp mill reaches full capacity.

--Hardwood prices between USD575 and USD675 per ton during 2015-2017.

--Decrease in tissue prices denominated in dollars during 2015 and 2016 due to the depreciation of local currencies against the dollar.

--USD1 billion CAPEX in 2015 and USD550 million from 2016 and thereafter, mainly related to forestry and industrial maintenance plus one tissue machine per year.

RATING SENSITIVITIES

Negative Rating Action: Factors that could lead to consideration of a Negative Outlook or downgrade include net leverage in the range of 2.7x to 3.0x during 2016. This range includes the expectation that pulp prices remain relatively unchanged through the end of 2016. If pulp prices were elevated during 2016, which is not Fitch's base case scenario, Fitch would expect net leverage to be below 2x. A change of management's strategy with regard to the relatively conservative capital structure would also be viewed negatively, as would deterioration in macroeconomic conditions in the countries in which the company has strong tissue businesses

Positive Rating Action: A rating upgrade for CMPC is not likely in the near future due to high capital expenditures. Factors that could contribute to consideration of a positive rating action in the medium term include: a commitment to a stronger long-term capital structure; and/or substantially higher pulp prices than currently anticipated during 2015.

LIQUIDITY

Manageable Liquidity Risk

As of June 30, 2015, CMPC had USD604 million of cash and marketable securities. The company has a manageable debt maturity profile with USD98 million of financial debt falling due in 2015, USD212 million in 2016, USD217 million in 2017 and USD628 million in 2018. During 2Q2014 the company raised USD250 million through an equity offering that has further improved liquidity. During June 2014, CMPC issued a USD220 million local currency denominated bond and during September the company issued a USD500 million senior unsecured notes to refinance debt maturities due in 2015.

FULL LIST OF RATING ACTIONS

Fitch affirms the following ratings:

Empresas CMPC S.A. (CMPC)

--Foreign and local currency Issuer Default Ratings (IDRs) at 'BBB+';

--Long-term national scale ratings at 'AA (cl)';

--Short-term national scale ratings at 'N1+ (cl)';

--National Equity Rating at 'Primera Clase Nivel 1 (cl)'.

Inversiones CMPC

--Foreign currency IDR at 'BBB+';

--Senior unsecured long-term notes at 'BBB+';

--Short-term national scale rating at 'N1+ (cl)';

--Long-term national scale rating at 'AA (cl)';

--Senior unsecured long-term debt denominated in Chilean pesos at 'AA (cl)';

--Commercial paper denominated in Chilean pesos at 'AA (cl)' and 'N1+(cl)'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Metodologia de Calificacion de Empresas no Financieras (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=844890

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990176

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990176

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150831006091/en/

Fitch Ratings
Primary Analyst
Jay Djemal
Director
+1-312-368-3134
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Address of Office
or
Secondary Analyst
Monica Coeymans
Director
+56-2-24993314
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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