DBRS Assigns BBB (high) Rating, Negative Trend, to Weyerhaeuser’s New Senior Notes

DBRS has today assigned a rating of BBB (high) with a Negative trend to the proposed $500 million senior notes issue (due in 2019) of Weyerhaeuser Company (WY or the Company). The proceeds will be used for debt reduction and general corporate purposes. DBRS recently confirmed the Company’s rating but changed the trend to Negative (see press release dated June 22, 2009 for details). The Negative trend reflects the continuing deterioration of the Company’s credit metrics, which are weak for the current ratings. Even though DBRS believes that the North American building products sector is at the bottom of the cycle, with a recovery expected to occur in 2010, there is a significant risk that the anticipated North American economic recovery will be delayed or weaker than expected. Should this be the case, the resulting slower housing recovery may not be sufficient to enable building product prices to recover in late 2009 and 2010, placing additional pressure on the Company’s operating performance. Unless the Company can reverse the deterioration in its cash flow from operations and free cash flow (before working capital changes) within the next six months, the current ratings are at risk.

While near-term market economic conditions are expected to remain weak, the longer-term outlook is optimistic. An economic recovery, expected to commence in late 2009, is forecast to positively affect residential construction activity, with an associated upward movement in lumber and log demand and prices. Improved real estate market conditions and higher pulp, timberland and building products earnings are expected to enable the Company to generate positive free cash flow in 2010.

In addition, DBRS believes that WY has sufficient liquidity to weather a temporary period of weak market conditions. WY owns 5.7 million acres of forestlands that have a DBRS-estimated market value of more than $12 billion. This provides a high level of potential liquidity and a financial risk that is substantially less than forest products industry averages. While the Company’s saleable timberlands help support the rating, this fact alone cannot support the rating at the current level.

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

The applicable methodologies are Rating the Forest Products Industry and DBRS Rating Methodology for Leveraged Finance, which can be found on our website under Methodologies.

This is a Corporate rating.