Fresenius Finance II B.V. -- Moody's assigns (P)Baa3 rating to Fresenius SE's proposed senior secured credit facilities

RATINGS RATIONALE

The (P)Baa3 rating (LGD 3, 32%) assigned to around EUR2.25 billion senior credit facilities issued at the holding level of FSE and its financing subsidiaries, Fresenius Finance II B.V. and Fresenius US Finance I, Inc. reflects the instrument's priority position in the capital structure. The facilities will be guaranteed on a senior basis by FSE and key intermediary holding companies (same as available to unsecured lenders), and selected operating companies and will be secured by share pledges in a number of Fresenius Kabi AG's operating subsidiaries and to be shortly acquired Fenwal Holdings Inc. Compared to the current bank agreement the senior lenders will not benefit anymore from a pledge of assets of Fresenius Kabi USA, Inc. (formerly APP Pharmaceuticals, Inc). However, FSE's policy of having only limited debt at operating subsidiary level and extra guarantor coverage from material Kabi US-subsidiaries, which is not available to unsecured bond lenders, justify the upward notching of secured senior lenders as compared to the unsecured bond debt.

Moody's issues provisional ratings in advance of the final sale of securities and these reflect Moody's credit opinion regarding the transaction only. Upon a conclusive review of the final documentation Moody's will endeavor to assign definitive ratings to the proposed senior bank facilities. A definitive rating and assigned LGDs may differ from provisional ones.

Fresenius' current Ba1 Corporate Family Rating reflects (1) the group's sizeable, and with recent acquisitions further increasing scale as a global provider of healthcare services and medical products as well as the recurring nature of a large part of its revenue and cash flow base; (2) its segmental diversification within the healthcare market, supported by strong positions in its four segments, which will be improved even further with the recently announced acquisition of Fenwal, a privately owned blood-transfusion equipment manufacturer, for an estimated purchase price of USD 1.1 billion, based on indications that the amount is lower than the EUR 1bn of equity raised by FSE in May 2012 which are used to finance the acquisition; (3) its track record of accessing both equity and debt markets to support its acquisition growth and refinancing needs, and of successfully deleveraging following large acquisition peaks; and (4) the attractive valuation of FSE's 31% stake in its dialysis subsidiary FME.

The rating is constrained by (i) FSE's leverage, with an estimated pro-forma for recent acquisitions debt/EBITDA ratio of 3.6x on a group basis (Moody's adjusted); (ii) the group's exposure to regulatory changes, reimbursement and pricing pressure from governments and healthcare organizations worldwide; (iii) by relatively weak structural liquidity profile driven by the need to continuously refinance its debt, despite adequate short term liquidity cushion; and (iv) a track record of aggressive acquisition strategy.

Fresenius' Ba1 rating anticipates a stable performance and improvement in leverage through earnings growth and relatively modest debt reduction. Though management is expected to favourably consider small acquisition opportunities, Moody's expects that FSE would - in the case of M&A activity - maintain metrics commensurate with the Ba1 rating. We note positively the equity funded nature of the most recent acquisition of Fenwal, although it needs to be viewed in the context of the failed bid for Rhoen, for which the equity funding was primarily raised. The stable outlook also incorporates the expectation that FSE's dividend policy will remain unchanged. As a result debt/EBITDA of the consolidated group should stay well below 4 times and CFO/debt well above 15%. We also note that previous difference in leverage metric between Fresenius and FME has been eliminated following FME's recent transactions and acquisition of Liberty for USD1.7 billion funded in Q1/2012 as well as Helios, Fresenius' hospital subsidiary, purchases of the Damp and KKD hospitals. We currently estimate that these elevated leverage metrics of around 3.6x (as adjusted by Moody's) will remain relatively stable for the next 12 months, significantly reducing the scope for sizeable transactions at both FSE and FME. Moody's notes that both the level of recent activity and continued high reliance on currently volatile capital markets are indicative of FSE's relatively aggressive financial policy.

Assignments:

.. Issuer: Fresenius SE & Co. KGaA /Fresenius Finance II B.V./Fresenius US Finance I, Inc.

. Senior Secured credit facilities , Assigned (P) Baa3, LGD3, 32%

What Could Change the Rating -- Up

Moody's would consider an upgrade to investment grade only upon a significant change in financial strategy that would target debt/EBITDA below 3.0 times, equivalent to reported net debt/EBITDA (management's measure) well below 2.5 times.

What Could Change the Rating -- Down

The ratings could be subject to downwards pressure if Fresenius' leverage metrics weaken as exemplified by a debt/EBITDA exceeding 4.0x or CFO to debt falling towards the low teens. Large debt financed acquisitions or negative free cash flows, materially reducing the prospect of deleveraging could also be drivers of a downward rating migration.

The principal methodology used in rating Fresenius SE & Co. KGaA, Fresenius Finance II B.V. and Fresenius US Finance I, Inc. was the Global Healthcare Service Providers Industry Methodology published in December 2011. 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.

Fresenius SE & Co. KGaA ("Fresenius", "the group" or "FSE") is a global healthcare group providing products and services for dialysis, the hospital and the medical care of patients at home. It is a holding company whose major assets are investments in group companies and inter-company financing arrangements. Around 55-60% of group sales and EBIT are generated by Fresenius Medical Care ("FME") (Ba1 Corporate Family Rating, stable Outlook), which is fully consolidated into the FSE group, although only 31% owned, based on managerial control and a particular ownership legal structure. Fresenius' other operations, which are majority or fully-owned, are Fresenius Kabi (infusion therapy, intravenously administered generic drugs and clinical nutrition), Fresenius Helios (operating private hospitals in Germany) and Fresenius Vamed (77% owned, hospital and other healthcare facilities projects and services). Based on the trailing 12 months figures as per 30 September 2012, the group reported revenues of EUR18.5 billion.

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Alex Verbov Vice President - Senior Analyst Corporate Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Matthias Hellstern Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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