Arcel Finance -- Aracruz -- 2003 Notes Assigned Rating.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 7, 2003

Standard & Poor's Ratings Services assigned its 'BBB-' rating to Arcel Finance Ltd.'s $400 million 7.048% senior secured future export receivables securitization notes due Sept. 1, 2011 (the 2003 notes). The 2003 notes are collateralized by U.S. dollar-denominated existing and future receivables generated from the export sales of bleached eucalyptus kraft market pulp (BEKP) to all customers of Aracruz Trading S.A. (Aracruz Trading), which is Aracruz Celulose S.A.'s (Aracruz) wholly owned Panamanian trading company. Aracruz is a Brazilian producer and exporter of BEKP, which currently exports approximately 98% of its production to leading manufacturers of paper worldwide.

The rating is based on the operating and financial strength of Aracruz, which is reflected in its current 'BBB-' local currency rating; the credit support provided in the form of overcollateralization; a three-month offshore reserve account; and other structural provisions.

The rating is also based on the following factors:

-- The expected ability of Aracruz to operate profitably even

during a time of low international pulp prices. Pulp prices

are volatile, but Aracruz has in the past remained profitable

even during times of low prices due to its low production

costs and its moderate financial policies;

-- Aracruz currently exports about 98% of its product to leading

manufacturers of paper in Europe (40%), North America (39%),

and Asia (18%), and is expected to continue to do so, and it

will covenant to sell through the structure at least 80% of

the receivables generated from its consolidated export sales;

-- An adequate level of credit enhancement in the form of

overcollateralization of expected future export receivables to

debt and a debt service reserve account. Debt service coverage

is expected to be on average 9.84x, with a minimum coverage

ratio of 5.09x. Even under Standard & Poor's stress case

scenario, which assumed a pulp price of $350 per ton, a 15%

reduction in Aracruz's exports levels, the addition of

short-term debt to the maximum possible allowed by the

transaction documents, and the cut of receivables due to

forfaiting transactions, debt service coverage remained above

2.54x. A reserve account in an amount sufficient to cover debt

service for three months will be funded at closing to cover

any collection account shortfalls; and

-- Structural enhancements to mitigate sovereign risk. Such

enhancements include the sale of receivables to an offshore

special-purpose vehicle and the grant of a security interest

in the receivables to the trustee. In addition, irrevocable

notification will be provided to all customers of Aracruz

Trading, the seller of the receivables. The notifications will

instruct those customers to make all payments for any BEKP

purchased from Aracruz Trading into an offshore collection

account controlled by the trustee for the benefit of the

noteholders.

The investment-grade rating is constrained by:

-- The commodity nature of the product, which increases the risk

that the product can be sold to customers that have not been

notified of the sale of receivables and irrevocably instructed

to make payments into the offshore account; and

-- The potential risk that the Brazilian government, in case of a

foreign exchange crisis, no longer allows the company to

continue exporting under the export supply agreement entered

into between Aracruz and Aracruz Trading. The Brazilian

government continues to closely monitor all foreign exchange

transactions within Brazil, giving it a greater ability than

many governments to successfully interfere with Aracruz's

exports or foreign currency cash flows. With respect to this

new issuance, the company has already repatriated the proceeds

of the 2003 notes through a prepayment of exports

("Prepagamento de Exportacoes") contract registered at the

Central Bank. The terms and conditions of the Prepagamento de

Exportacoes mirror those of the receivables purchase agreement

and, therefore, should be sufficient to meet the debt service

requirements under the notes. As the Prepagamento de

Exportacoes is registered at the Central Bank and the export

proceeds have already been repatriated, Standard & Poor's

believes it is likely that the Central Bank would allow the

company to continue trapping cash flow offshore in an amount

sufficient to satisfy the terms of the Prepagamento de

Exportacoes. The purchase price for pulp exports in excess of

the amount associated with this Prepagamento de

Exportacoes-which equals the proceeds of the 2003 notes-would

be expected to be repatriated within the time frame required

under Central Bank regulations. However, an early amortization

event or an accelerated amortization event may impact

Aracruz's ability to repatriate excess collections as required

by Central Bank regulations. The 2003 notes were issued Aug.

6, 2003, under a master program established in 2002 by Arcel,

Aracruz Trading, and Aracruz for the issuance of

export-collateralized debt securities of Arcel. On Feb. 6,

2002, Arcel issued $250 million of 5.984% senior secured notes

due 2009. This first series benefits from an unconditional and

irrevocable guarantee of timely payment of the notes provided

by a financial guaranty insurance policy issued by XL Capital

Assurance Inc. ('AAA' financial enhancement rating).

To speak to a Standard & Poor's analyst directly, contact Juan Pablo De Mollein or Cesar Fernandez, Structured Finance Latin America; or Milena Zaniboni, Corporate Ratings. Additional information on this transaction can be found on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. It can also be found on the Standard & Poor's Web site at www.standardandpoors.com.