S&P Rates Temple-Inland's $500M NotesA-;Outlk Neg.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/18/98--Standard & Poor's today assigned its single-'A'-minus rating to Temple-Inland Inc.'s $500 million medium term notes series F. At the same time, Standard & Poor's affirmed its single-'A'-minus corporate credit and senior unsecured

Despite a commodity focus, Diboll, Texas-based Temple-Inland benefits from a fairly favorable cost position owing to a modern asset base, good degree of fiber self-sufficiency, and forward integration into box manufacturing, with undervalued timber assets providing financial flexibility. A financial services subsidiary, Guaranty Federal Bank FSB, offers some earnings diversity, but a significant proportion of construction lending adds risk.

Over the past two years, market conditions for core containerboard and bleached paperboard products (which represent about 60% of total revenues) have been very weak. Strengthening of these markets is expected to be gradual. Over time, expected price improvement, along with measures to enhance revenues and lower operating costs, should produce higher levels of profitability and cash flow. This will allow the company to reduce debt somewhat from high levels incurred for a major expansion of bleached paperboard operations in the early 1990s. As a result, funds from operations to debt should average near 40% over the cycle, up substantially from levels in the 20%-30% range over the past several years. However, debt reduction will be slowed by the company's policy of using a portion of free operating cash flow for moderate share repurchases.

OUTLOOK: NEGATIVE

Expectations for substantial increases in earnings and cash flow due to gradually improving market conditions are factored into the ratings. In addition, Standard & Poor's anticipates material strengthening of credit protection measures through operating cost improvements or debt reduction. If this does not occur over the next one to two years, ratings could be lowered, Standard & Poor's said.---CreditWire

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