Rayonier (RYN) Corp. Rating Lowered to 'BBB-' at S&P

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'.

Our downgrade on Rayonier Inc. follows the company's announcement that it will reduce timberland harvest volumes and sales of nonstrategic timberlands over the next several years, which will result in lower than previously expected earnings and higher debt leverage. Given the lower planned sales of timber and nonstrategic land, the company reduced its dividend and indicated that it expects 2015 EBITDA to be in the $200 million to $220 million range, down from our prior expectation of about $270 million. We now expect debt leverage to be about 3.5x to 3.75x in 2015 rather than our prior assessment of roughly 2.5x.

"The rating outlook is stable based on our expectations that Rayonier will maintain credit measures to remain appropriate for the significant category, specifically, debt to EBITDA of about 3.5x to 3.75x and FFO to debt of 25% for 2015, with slight improvement from those levels in 2016, while maintaining strong liquidity and good asset protection levels given the value of its timberlands," said Standard & Poor's credit analyst Thomas Nadramia.

We could downgrade Rayonier if leverage measures deteriorated more than our expectations due to a decline in log prices or demand caused by an unexpected pullback in housing construction, lower pulp prices, or weaker Asian demand. Specifically, we could lower our rating if debt to EBITDA leverage exceeded 4x and FFO to debt fell below 15% on a sustained basis.

We view an upgrade to be unlikely over the next 12 to 18 months given Rayonier's planned reduction in timber and land sales. However, we could take a positive rating action if log prices materially exceeded expectations due to a more robust recovery in construction markets such that Rayonier reduced its debt leverage below 3x and FFO to debt exceeded 30%, measures that are appropriate for an intermediate financial profile category.

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