Fitch: Spin-off A Potential Credit Positive for Potlatch.

CHICAGO -- The potential spin-off of Potlatch Corporation's (PCH) manufacturing businesses (excluding all but one sawmill) may have positive rating implications for the company, according to Fitch Ratings.

The businesses that would be spun off, pulp and paperboard and paper tissue/towels, have been enjoying better earnings recently from good demand and higher prices. These businesses, however, have not always run synchronized and have not been consistently profitable. With their spin-off would go required maintenance and growth capital that are needed to increase critical mass and which otherwise would use resources that PCH intends to employ in its timberland operations. The spin-off in the end would leave PCH with a more stable source of cash flow, i.e. earnings from the company's 1.65 million acres of timberlands, without significant capital requirements and the means to expand the woodlands' earnings base. Ultimately, PCH's debt ratings will also be heavily influenced by its capital structure, before versus after the proposed spin-off, which has yet to be evaluated.

Fitch currently rates PCH as follows:

--IDR 'BB+';

--Senior unsecured notes 'BB+';

--Bank credit facility 'BB+';

--Rating Outlook Positive.

PCH is a mid-sized, integrated forester and manufacturer of wood and pulp based products. PCH's timberlands provide the majority of the raw materials for the manufacture of lumber, plywood and particleboard. PCH also makes pulp, paperboard and tissue and is a leading producer of retail private-label tissue products.

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