Fitch Affirms Empresas CMPC S.A.'s 'AA+(chl)' & 'A-'; Outlook Stable.

CHICAGO -- Fitch Ratings affirms the 'A-' local and foreign currency Issuer Default Ratings (IDRs) of Empresas CMPC S.A. (CMPC), as well as its 'AA+ (chl)' national scale rating. Fitch also affirms the 'A-' rating of Inversiones CMPC S.A.'s $300 million bond due in 2013 and the 'AA+(chl)' ratings of its peso-denominated bonds due in 2015 and 2027. All of the notes that have been issued by Inversiones CMPC are unconditionally guaranteed by CMPC. The Rating Outlook is Stable.

CMPC's credit 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 historically conservative financial profile. The ratings also take into consideration CMPC's ownership of 749,000 hectares of land in Chile and Argentina, on which it has 522,000 hectares of hardwood and softwood forest plantations. These forests could be monetized by the company to generate cash if needed.

During 2006, CMPC generated $517 million of EBITDA on $2.264 billion of sales. The company had $1.579 billion of debt and $144 million of cash and marketable securities as of Dec. 31, 2006. These figures translate into a total debt-to-EBITDA ratio of 3.1 times (x) and a net debt-to-EBITDA ratio of 2.8x. These leverage measures are higher than the averages ratios of 2.1x and 1.4x maintained by the company between 2001 and 2005, reflecting the fact that CMPC spent $1.359 billion during 2005 and 2006 on capital expenditures. About half of these expenses were directed toward the construction of a second production line at the Santa Fe pulp mill. This new line, which became operational in December 2006, is capable of producing 780,000 tons of bleached eucalyptus kraft pulp (BEKP) annually. At current prices the output from this new mill should boost the company's EBITDA by an additional $200 million, which should allow the company's credit metrics to revert to historical levels by the end of 2007.

Market pulp is CMPC's most important business division. During 2006, this product line accounted for 25% of the company's sales and 40% of its EBITDA. In 2007, these figures will rise due to the start of the new pulp line. 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 23% of its sales and 24% of its EBITDA in 2006. 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, Peru and Argentina, CMPC is the leading producer of tissue. The performance of this division has rebounded due to the improved economic environment in these countries. The tissue division was the third most important contributor of cash operating profits during 2006, accounting for 18% of EBITDA. Competition in the tissue business is essentially limited to regional companies due to the high per-unit cost of transportation, which makes it nearly impossible for outside companies to export tissue into the region profitably. CMPC's dominance in tissue is expected to continue due to its low production cost structure that results from its modern production facilities and access to recycled fiber. Vis-a-vis its competitors in the region, CMPC also enjoys competitive advantages from its extensive distribution network and the strong brand equity of its products.

CMPC is one of the largest diversified forest product companies in Latin America. In the Southern Cone, CMPC is the largest producer of tissue products, boxboard and newsprint. The company is the second-largest owner of forests in the Southern Cone and the second-largest producer of market pulp. The company is controlled by the Matte family, with a 56% equity stake.

A comprehensive credit analysis of CMPC is available on the Fitch Ratings web site at www.fitchratings.com.

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