Fibria Raised to Investment Grade by S&P on Brazilian Real Drop

A drop in the Brazilian real was the final push Fibria Celulose SA needed to get the investment grade it has been seeking since 2009.

Standard & Poor’s raised the pulp producer’s credit rating one step Thursday to BBB-, the lowest investment grade. Fitch Ratings upgraded Fibria to BBB- in February 2014, while Moody’s Investors Service rates the company one level below. Having the two non-junk ratings will broaden the range of investors who can buy the company’s securities.

Fibria, which was formed in 2009 when Votorantim Celulose & Papel SA bailed out Aracruz Celulose SA after $2.1 billion of bad currency bets, has been focused on paying down debt since the merger. A 25 percent drop in the Brazilian currency over the past six months added about 800 million reais to the pulp producer’s annual generation of earnings before interest, tax, depreciation and amortization, the ratings company said.

“The weaker real not only reduced Fibria’s cash costs but enabled it to reduce sustaining capital expenditures to about $120 million per year, bolstering free cash flow generation,” S&P analysts led by Diego Ocampo wrote. “The favorable environment for Brazilian exporters, including Fibria, will persist.”

Fibria got about 90 percent of its revenue from exports in 2014, according to data compiled by Bloomberg. S&P expects the real to be at 3.10 per dollar this year and 3.20 in 2016 and 2017. The currency fell 1.4 percent to 3.0033 per dollar at 3:08 p.m. in Sao Paulo on Thursday.

Fibria’s $600 million of bonds due 2024 rose 0.07 cent to 102.38 cents on the dollar.

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