Stora Enso headed for possible rating downgrade

Moody’s Investors Service has placed the Baa3 senior unsecured rating for Stora Enso Oyj and the P-3 short term rating under review for possible downgrade.

Stora Enso, with headquarters in Helsinki, Finland, is among the world’s largest paper and forest products companies with 2007 annual sales of EUR 13.4 bln.

Macroeconomic and industry trends are likely to continue to exert negative pressure on the operating performance. Moody’s notes that the possibility of additional cash restructuring costs could partially offset the benefits from two recent sizable disposals that have strengthened Stora Enso’s capital structure.

The company’s metrics are currently weak relative to the Baa3 rating category. Although pro forma Retained Cash Flow (RCF) to Debt is in line with Moody’s expectations for 2007, the weak profitability in combination with the company’s guidance for cost inflation could in the agency’s opinion depress metrics again in 2008, which is contrary to a further improvement of this metric towards 25%.

Moody’s also anticipates that EBITDA is not going to strengthen to levels of 16% and above. Moody’s recognizes the company’s sound liquidity.

Against the anticipated challenging economic backdrop, the review will focus on the trading prospects for Stora Enso in 2008 and beyond, as well on its ability to attain and sustain in the medium term operating and debt metrics in line with the rating category.

The possible downgrade is likely to be limited to one notch and the review process will be concluded during April.