DBRS Downgrades Abitibi to BB (low)

Dominion Bond Rating Service (“DBRS”) has today removed Abitibi-Consolidated Inc. and Abitibi-Consolidated Company of Canada (“Abitibi” or the “Company”) from “Under Review with Negative Implications”. The ratings have been downgraded to BB (low) from BB, reflecting the weakness in Abitibi’s credit metrics, including high leverage and net losses. The trends are Negative, as challenging industry conditions are expected to continue to pressure the Company’s profitability over the near term.

A key issue facing Abitibi, the largest North American and global producer of newsprint, is the steady decline in North American newsprint consumption over the past two years. Structural market changes, including electronic substitution and conservation initiatives by publishers, have largely been responsible, and a reversal in the trend is not expected. While capacity curtailments have been substantial and are likely to continue, price increases are not expected to be sufficient to generate significant net earnings over the near term. This is largely the result of Abitibi’s high exposure to strengthening in the Canadian dollar, which has largely offset the impact of price increases on earnings. Strength in the Canadian dollar is expected to continue to constrain earnings. In addition, sharply higher input costs, including energy, fibre, and freight, have also negatively impacted Abitibi’s margins, and are not showing signs of easing. As a result, DBRS expects that Abitibi’s profitability will remain under pressure over the near term.

Abitibi has not funded operations internally since 2002, largely due to earnings weakness. Negative free cash flow has limited the Company’s ability to reduce leverage from aggressive levels. Abitibi’s sale of its interest in Pan Asia Paper Co. Pte Ltd. (“PanAsia”) will reduce debt by approximately Cdn$1 billion; however, a debt-to-capital ratio of 57.8% at September 30, 2005 (pro forma for PanAsia) remains high for a cyclical company. Furthermore, DBRS expects free cash flow to be modest over the near term, which will limit material balance sheet improvement.