Moody's rates AZ Chem Sweden loans B1, Caa1

Moody's Investors Service said it assigned B2 corporate family and probability-of-default ratings to AZ Chem Sweden Holdings AB and a B1 rating with a loss-given-default assessment of LGD3 (33%) to its $100-million-equivalant euro first-lien term loan due 2013.

The agency also assigned B1 (LGD3, 33%) ratings to subsidiary AZ Chem US Inc.'s $50 million guaranteed first-lien revolving credit facility due 2012 and $140 million first-lien term loan due 2013 and a Caa1 (LGD5, 79%) rating to its $136 million second-lien term loan due 2014.

The outlook is stable.

The ratings were assigned in connection with Rhône Capital LLC's definitive agreement to acquire AZ Chem from International Paper. The total transaction consideration is estimated to be just over $500 million and is expected to be financed with $376 million of proceeds from the first- and second-lien term loan facilities and a $128 million cash equity contribution.

The agency said the B2 corporate family rating is constrained by weak pro forma credit metrics, including a pro forma debt-to-EBITDA ratio of about 5.6x at Dec. 31; the small revenue base of AZ Chem and reliance on a single primary business, crude tall oil based products; challenges of operating as an fully independent company from the former parent International Paper; difficult operating performance in 2005 due in part to unusual one time items; and the narrow financial disclosure going forward provided by an issuer with non-Securities and Exchange Commission filings.

Factors supporting the B2 corporate family rating are the company's market positions, geographic diversification, long-lived customer and supplier relationships, adequate operating margins, a strong relationship with International Paper and the high barriers to entry, Moody's said.

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