Fitch: Abitibi, Bowater outlook negative

Fitch Ratings said it removed the ratings of Abitibi Consolidated Inc. and Bowater Inc. from Rating Watch positive and evolving, respectively, and assigned a negative outlook to both companies.

The agency also affirmed Abitibi's issuer default rating at B+, senior unsecured debt at B+/RR4 and secured bank debt at BB-/RR3 and Bowater's issuer default rating at BB-, senior unsecured debt at BB- and secured bank debt at BB.

The negative outlook for Abitibi and Bowater, who are still looking to merge in an all-stock transaction in the third quarter, extrapolates the effects of recent weakening newsprint prices and higher material costs on profitability and cash flow, Fitch said.

Until the fourth quarter of last year, there was a balance between the decline in newsprint consumption, the decline in the value of the dollar and rising newsprint prices. The agency said that what support there was behind newsprint prices began eroding late last year and now may not be recoverable this year with the continued decline in newsprint consumption.

Fitch predicted that that without some restoration of newsprint prices, Abitibi and Bowater could be spending liquidity to support losses that could outpace the realization of $250 million in annual cost synergies due to the merger.

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