Moody's downgrades Aracruz

Moody's Investors Service said it downgraded Aracruz Celulose SA to Baa3 from Baa2 on its global scale and to Aa1.br from Aaa.br on the Brazilian national scale, with ratings on review for further downgrade.

The review began on Oct. 3 after the company announced substantial potential losses from currency derivatives as well as the planned merger into Votorantim Celulose e Papel SA (Baa3/review downgrade /Aa1.br).

Moody's noted that ratings are supported by the company's structural cost advantages compared with global peers, specifically for wood fiber, labor and energy costs.

Notwithstanding substantial concentration of clients, majority of revenue are generated under long-term supply agreements that support stable sales volume with good geographic diversification, the agency said.

Constraining factors are the relative small size of Aracruz, low operating diversity and execution risk, potential for debt increase and by uncertainties about the effectiveness of the ongoing industry consolidation process, according to the agency.

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