Ainsworth Lumber Co. Ltd. -- Moody's rates Ainsworth's proposed notes B2; upgrades CFR to B2

Toronto, November 09, 2012 -- Moody's Investors Service assigned Ainsworth Lumber Co. Ltd's ("Ainsworth") proposed $350 million senior secured notes due 2017 a B2 rating and upgraded the company's corporate family rating (CFR) to B2 from B3. The speculative grade liquidity rating was affirmed at SGL-3 and the ratings outlook is stable. "The upgrade reflects the company's lower leverage, decreased borrowing costs and improved debt maturity profile as a result of the company's proposed financing, and our expectation of stronger financial performance in-line with a gradual improvement in the US housing market", said Ed Sustar, Moody's lead analyst for Ainsworth.

Upgrades:

..Issuer: Ainsworth Lumber Co. Ltd.

.... Probability of Default Rating, Upgraded to B2 from B3

.... Corporate Family Rating, Upgraded to B2 from B3

Assignments:

..Issuer: Ainsworth Lumber Co. Ltd.

....Senior Secured Regular Bond/Debenture, Assigned 51 - LGD4 to B2

Ainsworth intends to use the net proceeds from its back-stopped $175 million rights offering and proposed $350 million senior secured notes to repay its existing $101 million senior secured term loan (rated Ba3) due 2014 and $406 million senior unsecured notes (rated Caa1) due 2015. The proposed $350 million senior secured notes due 2017 will have a second--priority lien on substantially all assets and will be guaranteed by Ainsworth and all its material subsidiaries. The B2 rating on the proposed $350 million senior secured notes incorporates the note holders' position behind a planned first-lien revolver (up to $50 million) that the company is expected to put in place after the proposed financing closes. The rating does not incorporate additional first-lien debt that the company has the ability to put in place. The rating on the company's existing $101 million senior secured term loan due 2014 and $406 million senior unsecured notes due 2015 will be withdrawn following their repayment. All the ratings are subject to the conclusion of the proposed transaction and Moody's review of final documentation.

RATINGS RATIONALE

The upgrade reflects the company's increased financial flexibility with 30% less debt, stronger interest coverage and improved debt maturity profile following the completion of the company's proposed debt and rights offering. Moody's estimates that Ainsworth's adjusted debt to EBITDA (including Moody's standard adjustments for pension and operating leases) will be around 5x and EBITDA to interest will be around 2x during the next 1-2 years. The upgrade also reflects the company's improved cash generation following the improvement in the US housing market and the company's increased focus on value-added products. Improved mill efficiencies by running the company's reduced footprint at high operating rates while increasing its mix of value-added products has allowed Ainsworth to generate higher margins than many of its industry peers. In addition, financial and strategic support by 54% owner Brookfield Private Equity and Finance Ltd. (Brookfield) was demonstrated by their backstop of Ainsworth's proposed rights offering.

The B2 corporate family rating reflects the company's sizeable debt, the company's volatile financial and operating performance, its relatively small size, single product focus and geographic concentration. The company's value-added product focus, its good fiber access and demonstrated support from Brookfield partially offsets these challenges. Ainsworth's financial performance is primarily influenced by oriented strandboard ("OSB") prices which are strongly impacted by the level of OSB operating capacity coming back on-line as demand gradually improves with the improvement in the US housing market.

The SGL-3 speculative grade liquidity rating reflects adequate liquidity as indicated by the company's relatively strong cash position, its lack of third party liquidity arrangements and Moody's projected cash generation of about $15 million over the next four quarters. The company's primary source of liquidity is its cash balance net of restricted cash that stood at approximately $87 million on September 30, 2012. The company is contemplating an asset-based revolving credit facility (up to $50 million) after the completion of the company's rights offering and proposed $350 million senior secured notes. Financial covenant issues are not expected over the short term and the company has approximately $5 million of debt maturities over the next four quarters (mainly equipment loans). Most of the company's assets are encumbered and the SGL-3 rating also reflects minimal alternate liquidity from asset sales.

The stable outlook reflects Moody's expectation of an improvement in demand with a gradual improvement in the US housing market. This is tempered by Moody's uncertainty regarding OSB capacity that may come back on-stream. The company could face a potential pullback in OSB prices and earnings if industry supply returns faster than demand. The rating could be lowered if the company's liquidity deteriorates significantly or if normalized financial leverage approaches 7 times for a sustained period of time. An upgrade would depend on an improvement in the company's operating flexibility by lessening its dependence on just a few OSB facilities. We would also expect sustainable improvement in the company's financial performance, including normalized financial leverage around 4.5 times and interest coverage around 3 times.

The principal methodology used in rating Ainsworth was the Global Paper and Forest Products Industry Methodology published in September 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Ainsworth, headquartered in Vancouver, British Columbia, Canada, is a manufacturer and supplier of OSB. The company owns and operates four OSB manufacturing facilities in Canada. One of the four OSB facilities is currently curtailed. Ainsworth has estimated annual production capacity of 2.5 billion square feet (3/8" basis) and generated revenues of $361 million over the past twelve months (ending September 2012).

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Ed Sustar VP - Senior Credit Officer Corporate Finance Group Moody'sCanada Inc.70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada(416) 214-1635Donald S. Carter, CFA MD - Corporate Finance Corporate Finance Group(416) 214-1635 Releasing Office: Moody's Canada Inc.70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada(416) 214-1635(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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