Moody's changes Abitibi, Bowater views to developing

Moody's Investors Service said it affirmed the B1 corporate family, B2 senior unsecured and SGL-2 speculative grade liquidity ratings of Bowater Inc. and Abitibi-Consolidated Inc. and revised the outlook for each company to developing from stable following the companies' announcement of a proposed merger.

The agency said its expectation is that the transaction will have a minimal impact on the companies' credit profiles due to the fact that both companies have the same ratings and all consideration will be non-cash. Consequently, there is no immediate impact on the relationship between debt and cash flow.

In addition, the transaction's expected cost savings and synergy benefits, while potentially significant, are not sufficient to prompt a positive outlook or upgrade, Moody's said, adding that with both companies being weakly positioned at the B1 level, the expected benefits serve only to improve relative positioning at the prevailing rating.

The developing outlook reflects the fact that transaction will not close until September and the very significant uncertainties that exist including the vagaries of shareholder and regulatory approval, composition of a combined management team, formulation of board and financial policies and the structural status of individual bond issues at each company vis-a-vis the other and vis-a-vis a yet-to-be arranged operating credit facility, Moody's said.

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