Fitch Affirms 'AA+(chl)' & 'A-' Ratings of CMPC; Rates Proposed Issuance 'AA+(chl)'.

CHICAGO -- Fitch Ratings has affirmed the 'AA+(chl)' national scale rating of Empresas CMPC S.A. (CMPC), as well as the 'A-' local and foreign currency credit ratings. In conjunction with this rating action Fitch has affirmed the 'AA+(chl)' rating of Inversiones CMPC S.A.'s peso-denominated bonds due in 2015 and the 'A-' rating of its U.S.-dollar-denominated notes due in 2013. Fitch has also assigned a rating of 'AA+(chl)' to Inversiones CMPC's proposed issuance of up to 7 million Unidad de Fomento of peso-denominated notes. These notes will be divided into two tranches, one which amortizes over a 30-year period, and the second tranche with a bullet maturity in 2011. These notes, along with the 2013 and 2015 notes that have been issued by Inversiones CMPC, are unconditionally guaranteed by CMPC. The Rating Outlook for the aforementioned ratings is Stable.

CMPC's investment grade ratings reflect the company's diverse cash flows, low-cost production capabilities due to its access to inexpensive fiber, market-leading positions in a number of products, and conservative financial profile. The ratings are also supported by CMPC's ownership of 709,000 hectares of land in Chile and Argentina. The ratings further reflect the company's conservative financial management. Between 2000 and 2004, the company's total debt-to-EBITDA ratio averaged 1.9 times (x) while its net debt-to-EBITDA ratio averaged 1.3x.

During the first nine months of 2005, CMPC generated $369 million of EBITDA. As of Sept. 30, 2005, the company had $1.134 billion of debt and $270 million of cash and marketable securities. These figures translate into a leverage ratio of 2.1x and a net leverage ratio of 1.6x. These credit ratios, which are higher than those of the company historically, reflect the fact that CMPC spent about $750 million in capital expenditures (capex) in 2005.

Leverage is expected to continue to climb in 2006, as the company estimates spending more than $600 million on capex. The majority of these expenses are related to the construction of the second production line (Sante FE II) at the Santa Fe pulp mill, which should become operational in the second half of 2006. This $745 million pulp line will have an annual output of 780,000 tons of bleached eucalyptus kraft pulp (BEKP). The company also spent $125 million in November 2005 to purchase Forestal Copihue, which owns 17,000 hectares of pine plantations, a sawmill, and a remanufacturing plant. This investment decreases the company's reliance upon third parties for some of its fiber needs.

CMPC's leverage should begin to decline in 2007, as the company receives a full year's output from the second pulp line at Santa Fe, and as capital expenditures fall back to about $300 million per year. This should allow the company to lower its total debt-to-EBITDA ratio to below 2.0x by the end of that year.

Market pulp is CMPC's most important business division. During 2004, this product line accounted for 28% of the company's sales and 46% of its EBITDA. Once the company's new pulp mill becomes operational, CMPC will have three pulp mills with a combined capacity of 2 million tons per year. CMPC's competitive position in market pulp is almost solely derived from its access to inexpensive fiber, which is primarily sourced from company-owned plantations. CMPC's cost advantage compared to its competitors in the Northern Hemisphere is expected to be sustainable as a result of the excellent growth rate of its softwood and hardwood trees. CMPC's newsprint, boxboard, and printing and writing paper division accounted for 22% of its sales and 24% of its EBITDA in 2004. The company is the market leader in all of these products in Chile. This division has grown rapidly during the past decade due to major investments in boxboard, newsprint, and corrugated paper equipment. Exports of the first two products provide CMPC with additional geographic diversification.

In Chile, Uruguay and Argentina, CMPC is the leading producer of tissue. Historically, this division has either been the largest or second-largest source of EBITDA for the company. In recent years, the tissue division has been negatively affected by the economic turbulence in Argentina and the sluggish Chilean economy. During 2004, the tissue division was the third most important contributor of cash operating profits, accounting for 14% of EBITDA. CMPC's dominance in tissue is expected to continue due to its low production cost structure, extensive distribution network, and the strong brand equity of its products.

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