DBRS Maintains Abitibi Consolidated Inc. and Abitibi Consolidated Company of Canada Under Review with Positive Implications in Expectation of Merger With Bowater Incorporated

The ratings for Abitibi-Consolidated Inc. (Abitibi or the Company) and Abitibi-Consolidated Company of Canada remain on track. On January 29, 2007, Abitibi and Bowater Incorporated (Bowater) agreed to merge. The new company, AbitibiBowater Inc. (AbitibiBowater), will be the largest newsprint producer in the world with a significant market share in North America.

DBRS views the transaction, which is expected to close in Q3 2007, as positive for Abitibi and Bowater. The Under Review with Positive Implications status reflects the expectation that the transaction will be completed on time, as well as the uncertainty regarding the financial and operational structure of the new company. If the transaction closes in Q3 2007 and the financial structure is not substantially dissimilar from the pro forma estimates the likely rating action would be a confirmation of BB (low) ratings with a newly instated Stable trend.

The confirmation and trend change would reflect the increased scale of the new company that would improve its business risk relative to that of Abitibi and Bowater on a standalone basis. Newsprint prices have recently started to decline and further industry production curtailments are required to close the demand/supply gap and restore upward momentum in prices. The creation of AbitibiBowater will provide a broad base of assets to better be able to respond to industry dynamics. However, the financial risk profile of AbitibiBowater is expected to remain relatively high, and a significant reduction in debt and a commensurate improvement in interest and cash flow coverage ratios would be required to upgrade the rating, an event unlikely to occur in the near term.

Planned asset sales, including previously announced timberland and hydroelectric generation facilities, will provide funds to be used toward debt reduction in 2007, which are expected to moderately improve AbitibiBowater’s financial profile. In addition, expected acquisition synergies of $295 million (USD250 million) annually will increase earnings and cash flows in two years. Furthermore, combined available borrowings on credit facilities amounted to $1.0 billion (USD900 million) at December 30, 2006, which will be more than sufficient to fund capital requirements in the near term. DBRS will continue to monitor developments with respect to the transaction, along with prevailing market conditions, and will determine the appropriate rating action prior to the closing of the transaction. In the event that the transaction is delayed or does not close, there would be negative implications for the rating.

Note:
All figures are in Canadian dollars unless otherwise noted.