Fitch puts Abitibi on positive watch, Bowater on evolving watch

Fitch Ratings said it placed Abitibi Consolidated Inc.'s B+ issuer default rating, B+/RR4 senior unsecured debt rating and BB-/RR3 secured bank debt rating on Rating Watch positive and Bowater Inc.'s BB- issuer default rating, BB- senior unsecured debt rating and BB secured bank debt rating on Rating Watch evolving.

The Rating Watch placement follows the companies' announcement of an intent to merge in an all-stock transaction.

The agency said it believes the merger is a positive step forward for both companies. Paper mill locations are complementary and lend support to an estimated $250 million in cost synergies to be gained by employing the 'best practices' of each, which encompass not only manufacturing but also procurement and delivery and extend to lumber operations as well. Moreover, the combination will provide the companies a stronger platform to compete in the challenging newsprint industry, which witnessed a 6.3% decline in consumption last year.

Offsetting the positive aspects of the merger is the high leverage of both companies amid deteriorating industry fundamentals, Fitch added.

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