Moody's upgrades Aracruz Celulose

Moody's Investors Service said it upgraded Aracruz Celulose SA's local-currency issuer rating to Baa2 from Baa3, upgraded its Brazilian national scale issuer rating to Aaa.br from Aa1.br and affirmed its foreign-currency senior unsecured debt rating at Baa3.

The outlook is stable.

The agency said the upgrade results from the improved leverage metrics of Aracruz as measured by a total adjusted gross debt-to-EBITDA ratio of below 2x since early 2006, which Moody's said reflects additional cash flow from joint venture Veracel rather than balance-sheet deleveraging.

Aracruz's ratings reflect the company's favorable production profile, high margins, scale, self-sufficiency in electricity and fiber and efficient logistics, Moody's said, adding that the company's prudent financial management is governed by strict liquidity and leverage policies that have ensured a healthy balance-sheet structure and strong credit metrics even during market downturns.

The agency said the ratings are constrained by Aracruz's small size relative to international peers, its low product and operational diversity, its substantial client concentration and uncertainties regarding the effectiveness of the ongoing industry consolidation process to improve market discipline and reduce margin volatility.

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