Fitch Sees Abitibi-Consolidated Defaulting On Some Debt

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By: E&P Staff

Fitch Ratings Tuesday downgraded Abitibi-Consolidated Inc. (ACI) to its second-lowest junk bond rating, on concerns the newsprint producer will default on some debt coming due soon.

Fitch lowered its issuer default rating (IDR) for the AbitibiBowater subsidiary to CC, which indicates “probable default” from CCC. It also cut the ratings of its senior unsecured debt, and secured revolver ratings by a similar one notch — and warned a further downgrade could be coming.

“This rating action responds to the likelihood of a restricted default/default in one or more series of ACI’s securities imminently approaching maturity and/or the likelihood that holders of those securities, in order to avoid default, will have to accept a package of notes carrying a 15% coupon and a cash payment, the combined value of which is less than the principal redemption of the securities,” wrote analysts Dennis Ruggles and Sean Sexton.

Notes of $196 million are coming due next April 1, with $150 million due on June 20, and another $150 million will be due Aug. 1, 2009.

ACI is offering a package of cash and new senior unsecured notes due in 2010 in lieu of a cash redemption, Fitch said.

“Given the highly discounted market value of ACI’s debt, it is unlikely that the value of the offered package equals the par value of the existing notes, resulting in a loss for bondholders that is tantamount to a partial default,” Fitch said.

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