Fitch Affirms Georgia-Pacific LLC's Ratings; Outlook Stable

Business Wire, Dec 21, 2007

CHICAGO -- Fitch Ratings has affirmed Georgia-Pacific LLC's (GP) ratings as follows:

--Issuer Default Rating (IDR) 'B ';

--Senior unsecured 'B /RR4';

--Senior secured revolver 'BB/RR2';

--First lien term loan. 'BB'/RR2';

The Rating Outlook is Stable.

Although earnings will be modestly softer than last year, debt levels will not have noticeably grown by year-end (around an estimated 5.2 times [x] EBITDA), and as a consequence 2007's financial metrics will not have changed too much from year-end 2006. The year-over-year decline in Fitch's earnings estimates for GP is the product of cost inflation and price attrition in GP's tissue and towel business compounded by industry-wide earnings problems in lumber, wood panels and gypsum wallboard. A good season in corrugated packaging and market and fluff pulp helped stem the earning's erosion.

Cash flow through much of 2007 has been opportunistically directed to business investment which detracted from debt reduction. GP installed a new through-air-dry tissue machine in Wauna, OR and built a new gypsum plant in Savannah, GA in addition to buying three sawmills and four plywood plants from International Paper Co. and Smurfit-Stone Container Corp.'s Brewton, AL linerboard mill.

Fitch's prognosis is for a marginally better 2008. Retail price increases for tissue products have been announced by Procter & Gamble Co., Kimberly-Clark Corporation and GP. Although cost driven, a larger chunk of this domestic price increase should fall to GP's bottom line aided by backward integration into the manufacture of feedstock pulp. Next year should also be a good year for pulp and corrugated packaging earnings with increased volumes from Brewton. GP's building products line is not expected to weaken earnings much further due to industry-wide supply curtailments taking place that should end price erosion.

The resulting increase in GP's cash flow in 2008 could return financial leverage back to levels seen at the end of 2006, exclusive of further large acquisitions, and is the rationale behind Fitch's rating affirmation.

GP was taken private in 2005 by Koch Industries, Inc. in a transaction valued at just over $21 billion. GP produces a wide variety of products: consumer tissue, disposable tableware, lumber, plywood, OSB, gypsum wallboard, corrugated packaging, and uncoated freesheet. The company is either number one, two or three in most of these markets.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default.

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