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Domtar Corp.'s Proposed US$250 Million Senior Unsecured Notes Rated 'BBB-'; Ratings Unaffected By Criteria Change

    TORONTO (Standard & Poor's) Nov. 20, 2013—Standard & Poor's Ratings Services 
    today said it assigned its 'BBB-' issue-level rating to Montreal-based pulp 
    and paper producer Domtar Corp.'s proposed US$250 million senior unsecured 
    notes. The notes rank equally with all of the company's existing unsecured 
    obligations. We understand that the proceeds from the proposed notes will be 
    used to partially fund Domtar's recently announced acquisition of Spain-based 
    manufacturer of sanitary and hygienic products Laboratorios INDAS. 
    
    At the same time, Standard & Poor's reviewed its ratings on Domtar, which it 
    labeled as "under criteria observation" after publishing of its revised 
    corporate criteria on Nov. 19. Standard & Poor's expedited the review of its 
    ratings on Domtar because the company recently proposed to issue debt (see "How
    Standard & Poor's Plans To Finalize--And Apply--Its Corporate Ratings Criteria,
    " published Nov. 13, 2013). With our criteria review of Domtar complete, we 
    have confirmed that our ratings on this issuer are unaffected by the criteria 
    changes.
    
    We estimate Domtar's debt-to-EBITDA ratio to increase to 2.5x pro forma for 
    the acquisition from 2.2x as of Sept. 30, 2013. Our 'BBB-' long-term corporate 
    credit rating on Domtar reflects our view that the company will be able to 
    deleverage following the partially debt-financed INDAS acquisition, such that 
    leverage falls below 2x and funds from operations to debt exceeds 40% by 
    year-end 2014. Based on these metrics, we assess Domtar's financial risk 
    profile to be "intermediate." We expect acquisition-driven earnings growth 
    from Domtar's personal care segment to provide an offset to earnings lost from 
    diminishing uncoated free sheet consumption due to electronic substitution. 
    Still, we believe the acquisition will not affect our "fair" business risk 
    profile assessment at this time given that forecasted EBITDA from the 
    company's pulp and paper segments will account for about 80% of EBITDA in 
    2014.
    
    "The stable outlook on Domtar reflects our expectations that the company will 
    continue to generate strong cash flow from operations," said Standard & Poor's 
    credit analyst Rahul Arora. "Furthermore, although Domtar might continue with 
    shareholder-friendly returns, we believe it its adjusted leverage ratio will 
    be below 2x by year-end 2014," Mr. Arora added. 
    
    RELATED CRITERIA AND RESEARCH
    Related criteria
    
    RATINGS LIST
    Domtar Corp.
    
    Corporate credit rating          BBB-/Stable/--
    
    Ratings Assigned
    Proposed US$250 sr secured notes BBB-
    
    

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