Fitch Affirms 'BBB' Ratings of Aracruz.

CHICAGO -- Fitch Ratings has affirmed the 'BBB' foreign and local currency issuer default ratings (IDRs) of Aracruz Celulose S.A.'s (Aracruz). Fitch has also affirmed the company's 'AA+' (bra) national scale rating. These investment grade ratings are supported by Aracruz's relatively low financial leverage and strong business position, which is primarily a result of the company's low-cost production capabilities and its high-quality bleached eucalyptus kraft market pulp (BEKP). Through the first nine months of 2006 the company's cash cost of production was one of the lowest in the world, averaging US$190 per ton of BEKP. Aracruz's excellent cost structure has enabled it to generate positive cash flows during troughs in the volatile pulp cycle, allowing it to grow without compromising its balance sheet.

Aracruz's credit ratings are also supported by the long-term supply contracts the company has with several large international tissue producers. During 2005, these contracts, which are subject to market prices, accounted for approximately 80% of Aracruz's sales. Unlike most companies in Latin America, more than 95% of the company's sales are derived from exports. These dollar-denominated sales protect Aracruz from a mismatch between the currency of its debt and the currency of its revenues.

Aracruz ended 2005 with US$1.295 billion of debt and US$558 million of cash and marketable securities. During 2005, the company generated US$659 million of cash operating profits (EBITDA). These figures gave the company a total debt-to-EBITDA ratio of 2.0 times (x) and a net debt-to-EBITDA ratio of 1.1x. The company also guarantees half of the debt of Veracel, a 50-50 joint venture between Aracruz and Stora Enso OYJ. At the end of 2005, Aracruz's several guarantee of that debt amounted to US$398 million.

During the first nine months of 2006, Aracruz generated US$518 million of EBITDA. Adding half of Veracel's US$122 million of EBITDA to this figure, Aracruz's adjusted EBITDA during the first nine months is US$579 million. As of Sept. 30, 2006, Aracruz had US$1.288 billion of debt and US$610 million of cash and marketable securities. Aracruz also guarantees US$418 million of Veracel's debt. The addition of Veracel's EBITDA and debt gives Aracruz an adjusted total debt-to-EBITDA ratio of 2.2x which remains consistent with the rating categories.

Fitch rates the Brazilian government's foreign currency obligations 'BB', Rating Outlook Stable, and has assigned Brazil a 'BB+' Country Ceiling. Country Ceilings reflect Fitch's judgment regarding the risk of capital and exchange controls being imposed by sovereign authorities that would prevent or materially impede the private sector's ability to convert local currency into foreign currency and transfer to non-resident creditors - transfer and convertibility (T&C) risk. Aracruz's foreign currency IDR of 'BBB' exceeds Brazil's Country Ceiling by two notches due to the amount of its exports relative to its foreign currency liabilities, as well as the amount of cash it retains. Aracruz's considerable exports are viewed favorable from a credit perspective in the event of T&C restriction because the company could keep a portion of dollar denominated export proceeds abroad via transfer pricing. In addition, Aracruz does not have to repatriate proceeds from exports sales for 360 days and is allowed to keep 30% of exports abroad to service foreign debt obligations. Aracruz is on pace to generate about US$1.5 billion of exports in 2006. This figure compares with about US$30 million of debt that amortizes in hard currency and about US$100 million of debt service on non-amortizing, hard currency debt obligations.

When considering a company's cash position, Fitch applies an aggressive discount to reflect the difficulty in predicting the timing of sovereign controls and the likelihood that such controls would severely or completely limit a company's ability to use its onshore liquidity to pay offshore debt service. As a result, Aracruz cash position of US$610 million is viewed favorably, as it represents nearly 4.7x the amount of hard currency debt service that comes due in the next 12 months. Furthermore, in the 2002 election cycle, Aracruz proved adept at managing its liquidity by moving about 70% of its cash abroad.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.