DBRS Confirms Ratings of Weyerhaeuser Company at BBB (high) and Weyerhaeuser Real Estate Company at R2 (high)

DBRS has today confirmed the ratings of Weyerhaeuser Company (WY or the Company) at BBB (high) and Weyerhaeuser Real Estate Company at R-2 (high). The trends remain Stable and the ratings are on track. Although the credit metrics do not support the current rating, the Company’s business and financial risk is considerably below industry averages and over-ride the weak credit profile.

A relatively stable earnings contribution from timberlands reduces WY’s business risk. Earnings from timberland operations have consistently provided about a third of Weyerhaeuser’s segmented EBITDA (the transfer of the Company’s fine paper business to Domtar in H1 2007 will increase that percentage to close to 40%). A long history of public and private timberland ownership in North America indicates that earnings and cash flows are significantly less volatile than comparable end-use products such as lumber and market pulp. As a result, WY’s business risk is substantially less than the average for the forest-products industry. In addition, forest land has proven to be highly saleable, even during recessionary periods. WY owns 5.6 million acres of forest lands that have an estimated market value of more than US$12 billion.

The Company’s asset value-to-debt coverage ratio of 2.0x provides a high level of liquidity and a financial risk that is substantially less than the industry average. In addition, WY has a high level of short-term liquidity with cash and unused credit facilities of $1.8 billion at December 31, 2006. The Company has been diligent in raising funds to reduce debt that was incurred in 2002 to finance the acquisition of Willamette Industries, Inc. Strong operating earnings and proceeds from divestitures have enabled WY to reduce total debt by $5.1 billion (40%) in the past four years. A $1.35 billion debt repayment in H1 2007 will further reduce debt to approximately $6.3 billion in total.

The positive impact of lower debt levels will be offset by a large distribution to shareholders (associated with the Domtar fine-paper transaction) that will reduce shareholders equity, and the elimination of the earnings and cash flows from the Company’s fine-paper business. On a pro forma 2006 basis, the Domtar fine-paper transaction would leave leverage and cash flow coverage ratios unchanged. Although weak building products and possibly lower pulp prices would negatively impact earnings and cash flows in 2007 and 2008, WY’s business and financial risks are expected to remain significantly lower than industry averages, supporting the above ratings.

Note:
All figures are in U.S. dollars unless otherwise noted.