Fitch: Smurfit-Stone Ratings Unchanged After 3Q Charge to Earnings.

NEW YORK -- Fitch Ratings will not change Smurfit-Stone Container Corp.'s (SSCC) senior unsecured ratings, following the company's announcement of a $300 million charge to earnings in the third quarter. Fitch rates SSCC's senior unsecured debt 'B+'. The Rating Outlook is Stable. The $300 million charge will cover impairment, closure and severance costs for the company's linerboard mill in New Richmond (Quebec, Canada), the medium mill in Bathurst (New Brunswick, Canada) and the idled No. 2 paper machine in Fernandina Beach (Florida). SSCC will have reduced its capacity by 700,000 tons or near 10% with the permanent closure of these mills. Cash costs are expected to approximate $40 million.

In Fitch's opinion, SSCC will likely next move to close box plants that have been supported by the mills to bring capacity in line with box demand. Box demand has been lagging growth in the general economy and last year's shipment statistics in particular since February. Eastern Canada has the highest cost fiber basket in North America and high electricity costs as well. The selection of these particular mills appears rational, will likely eliminate some oversupplied linerboard exports, and better balance SSCC's manufacturing system between its mills and box plants. The move will also eliminate some cross-currency exposure with the Canadian dollar which has been plaguing many Canadian paper companies.

Fitch believes SSCC will benefit by reducing its unit manufacturing costs but expects that the benefits will lag closure costs and may not be wholly visible until sometime in the second quarter of next year. In the interim financial metrics and liquidity are expected to show some deterioration.

SSCC's actions do make a statement about their long-term expectations for the containerboard industry. A further rationalization of the industry's capacity is welcomed and hopefully will be sufficient to support both box and linerboard prices, which have been languishing in the spot markets.

SSCC is the North American leader in the production of corrugated boxes, a leading producer of folding cartons, and the world's largest recycler of paper products. SSCC produces over seven million tons of linerboard and ships over 85 billion square feet of boxes annually. Sales in 2004 were in excess of $8 billion.

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