London, 29 August 2012 -- Moody's Investors Service has assigned a definitive Caa1 (LGD 5, 85%) rating to Kloeckner Pentaplast's (KP) recent bond issuance. The senior secured notes have been issued by finance vehicle KP Germany Erste GmbH, an indirect subsidiary of Kloeckner Holdings S.C.A., the ultimate holding company of the Kloeckner Pentaplast group. The notes mature in July 2017.

RATINGS RATIONALE

Moody's definitive ratings on this debt obligation confirms the provisional rating assigned on 28 June 2012.

The proceeds from the issuance, together with proceeds from the PEC's and TPEC's from new sponsors led by Strategic Value Partners, have been used to refinance existing senior debt at Kloeckner Pentaplast/Kleopatra as part of the recent debt restructuring of the group.

The assigned Caa1 rating of the senior secured notes is two notches below the group's B2 corporate family rating, reflecting the sizeable portion of priority debt ranking ahead of the notes. While the notes benefit from the same collateral package as the group's senior secured bank debt, in a default scenario noteholders will benefit from any proceeds on a subordinated basis only and payments in respect of the guarantees supporting the notes are applied first to the senior secured revolving credit facility and senior secured term loan B and only thereafter to the notes.

The assigned B2 Corporate Family Rating reflects the group's high financial leverage with Debt/EBITDA as adjusted by Moody's of 6.4x on a pro forma basis based on the capital structure that has been implemented in June 2012, which positions KP initially weakly in its rating category. Furthermore, the rating is constrained by the group's fairly commoditised product portfolio as well as the price competitive nature of the industry. In addition, input cost management is deemed to be a major challenge as only about 50% of contracts contain automatic pass-through mechanisms, leaving the group exposed to the price volatility of resin and to individual negotiations with its customers to preserve profitability. We note, however, the solid track record with fairly stable EBITDA generation over the past years.

The rating also reflects (i) the group's solid size and market position in the rigid plastic packaging market with leading positions in most of its business areas; (ii) fairly stable volumes through the cycle as a result of a high share of sales towards non-discretionary pharma and food end markets with solid customer diversification and longstanding relationships; (iii) the stable operating profitability over the past years despite challenging economic conditions and extensive restructuring measures, helped by the group's ability to swiftly pass on input cost volatility.

Upwards pressure could build should KP manage to significantly reduce leverage towards 5 times, measured as debt/EBITDA, on a sustainable basis on the back of improvements in operating profitability. Furthermore, the rating could enjoy upwards pressure were KP to improve free cash flow generation towards 5% of total debt and interest cover in terms of EBIT/Interest towards 1.5 times.

A deterioration in profitability, caused for instance by increasing competition or challenges to manage volatile raw material costs resulting in weaker profitability and material negative free cash flow or a the inability to improve Debt/EBITDA as adjusted by Moody's towards 6 times (from a pro forma leverage of 6.4x as of June 2012) as well as tightening headroom under the company's financial covenants could put negative pressure on the ratings.

The principal methodology used in rating KP Germany Erste GmbH was the Global Packaging Manufacturers: Metal, Glass, and Plastic Containers Industry Methodology published in June 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.

Kloeckner Holdings S.C.A., with legal domicile in Luxembourg, is the ultimate holding company of German plastic packaging Manufacturer Kloeckner Pentaplast, a global leader in the manufacturing of rigid plastic films for the pharmaceutical, food, medical, electronics and other packaging industry. The group generated EUR 1.2 billion of sales in the last twelve months ending March 2012.

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