By: E&P Staff In its first coverage of Abitibi Consolidated Inc., Fitch Ratings says the big Canadian newsprint maker "appears to be making some progress in restoring profitability but ... has a long way to go."
Fitch rates Abitibi senior unsecured debt "B+," which it defines as "highly speculative," non-investment grade. It assigned an issuer default rating of "B+" as well. It said Abitibi's rating outlook is stable.
About US$3.3 billion in public securities, and C$700 million in bank debt is affected by the rating.
In a separate development, a spokesman for Abitibi told the Canadian Press Monday that it had made a final contract offer to the six unions striking at its Stephenville, Newfoundland, newsprint mill. The unions flatly rejected the offer last week.
"If anyone thinks this is not a final offer, they are making a very serious miscalculation," Seth Kursman, Abitibi's vice-president of communications and government affairs, told CP. "This is it. Without an agreement with the union, the mill will permanently close. And if we haven't run out of time, we're getting darn near close."
Fitch said its ratings "are a function of a depressed North American demand for newsprint, a projected slow recovery in operating profits, and Abitibi's debt level."
Fitch said the operating profits and margins of its newsprint grades have been improving, "but at 6.7% in this past third quarter (before special charges for mill closures), the latter is still only just over a third of the margins earned four years earlier."
Fitch said it "does not see Abitibi's situation darkening further, but doesn't expect significant gains next year in debt repayment from operations, either."
Abitibi is North America's largest newsprint producer. Newsprint, Fitch said, accounts for 55% of Abitibi's C$5.8 billion (US$5.04 billion) in revenues.
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