Fitch Puts Abitibi on Rating Watch Positive and Bowater on Rating Watch Evolving.

CHICAGO -- Fitch has placed the ratings of Abitibi Consolidated Inc. (ABY) and Bowater Inc. (BOW) on Rating Watch Positive and Evolving, respectively, following the companies' joint announcement of an intent to merge in an all stock transaction. Fitch rates ABY's debt as follows:

--Issuer Default Rate 'B+';

--Senior unsecured debt 'B+/RR4';

--Secured bank debt 'BB-/RR3'.

Fitch rates BOW's debt as follows:

--Issuer Default Rate 'BB-';

--Senior unsecured debt 'BB-';

--Secured bank debt 'BB'.

ABY and BOW have overlapping footprints in newsprint and supercalendered papers and lumber. ABY makes and sells about 3.4 million metric tonnes of newsprint per year compared to BOW's 2.2 million metric tonnes. Both companies make specialty and supercalendered grades (ABY: 1.7 million metric tonnes, BOW: 0.9 million short tons), and each manufactures lumber in Canada (ABY: 1.9 billion board feet, BOW: 1.0 billion board feet). In addition BOW makes light-weight coated grades of paper, primarily at its newly converted mill in Catawba, SC and manufactures and sells about one million metric tonnes of market pulp per year.

Fitch believes the merger is a positive step forward for both companies. Paper mill locations are complementary and lend support to an estimated US$250 million in cost synergies to be gained by employing the 'best practices' of each. These encompass not only manufacturing but also procurement and delivery and extend to lumber operations as well. Moreover, the combination will provide the companies a stronger platform to compete in the challenging newsprint industry, which witnessed a 6.3% decline in consumption last year. It will also help address cost inflation, which is largely responsible for last year's record high newsprint prices. The consolidation will allow the Number 1 (ABY) and Number 2 (BOW) newsprint producers on the continent to find collaborative solutions that deal with North America's shift to the internet for information, likely at more reasonable costs than if each were to forge ahead independently. Offsetting the positive aspects of the merger is the high leverage of both companies amid deteriorating industry fundamentals.

The merger will require shareholders' approval and the blessing of regulatory authorities in both Canada and the U.S. Approvals by the latter could extend the timetable for the merger (likely the least significant consequence) and conditions for approval could affect the benefits of the merger (potentially a significant consequence). As the merger moves forward, the financial risks to investors will become clearer and will be evaluated by Fitch. Until the merger is consummated both companies will operate independently and conduct their financial affairs to reduce debt through available cash flow and announced asset sales.

Through the third quarter of last year, ABY had total debt outstanding of almost US$4.3 billion, including asset securitizations. The company's 12 month rolling EBITDA, calculated by Fitch, was C$563 million. BOW had US$2.4 billion in debt outstanding at Sept. 30, 2006; 12 month rolling EBITDA was US$379 million.

Fitch's rating definitions and terms of use of such ratings are available on the agency's public web 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.