S&P: Abitibi-Consolidated, Bowater unchanged

Standard & Poor's said that the announced merger between Abitibi-Consolidated Inc. (B+/negative) and Bowater Inc. (B+/stable) would not affect the ratings or outlook on either company.

S&P said it expects that the long-term corporate credit rating on the combined AbitibiBowater Inc. will be B+ with a stable outlook, although weaker newsprint market conditions during the protracted closing period would expose the rating and outlook to further pressure.

The proposed all-equity transaction will result in a stronger competitive position and an improved cost profile for the combined entity, but these strengths are overshadowed by the steady decline in demand for its core newsprint products and heavy debt burdens, the agency added.

After accounting for the companies' previously announced debt-reduction initiatives and giving full credit for expected synergies, S&P said it calculates that last 12 months pro forma fully adjusted total debt to EBITDA will remain high at about 5.5x.

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