S&P downgrades M-real

Standard & Poor's said it lowered M-real Corp.'s long-term corporate credit rating to BB- from BB, lowered the senior unsecured debt and bank loan ratings to BB- from B, affirmed the B short-term corporate credit rating and affirmed Mesta Group Financial Services Oy's B commercial paper.

The outlook is negative.

The rating action primarily reflects M-real's continued weak operating performance and the limited prospects for cash flow improvement and debt reduction in the short to medium term. S&P attributed this to continued tough market conditions for the group's core businesses, higher input costs and the group's internal weak performance.

In 2005, debt protection measures weakened, with adjusted funds from operations to net debt at about 9% (12% in 2004), although S&P said was due in part to the loss of cash flow from a Finnish labor dispute.

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