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Rating Action:

MOODY'S AFFIRMS AVERY DENNISON'S PRIME-1 RATING FOR ITS NEW EURO CP PROGRAM; A2 LONG-TERM DEBT RATINGS AFFIRMED, OUTLOOK REMAINS NEGATIVE

30 May 2002
MOODY'S AFFIRMS AVERY DENNISON'S PRIME-1 RATING FOR ITS NEW EURO CP PROGRAM; A2 LONG-TERM DEBT RATINGS AFFIRMED, OUTLOOK REMAINS NEGATIVE

Approximately US$ 450 Million of Debt Securities Affected.

New York, May 30, 2002 -- Moody's Investors Service has affirmed the Prime-1 rating of Avery Dennison Corporation's (Avery) for its new $ 450 million Euro commercial paper program. Moody's also affirmed the A2 ratings on Avery's Medium Term Note programs. Avery will use the Euro CP program as part of its long-term financing for its European operations and support the recent acquisition of Jackstadt Gmbh. Avery Dennison Holding & Finance The Netherlands BV and Avery Dennison Investments The Netherlands BV will also be borrowers under this program. These two subsidiaries have been assigned Prime-1 ratings since their borrowings will be absolutely and unconditionally guaranteed by Avery Dennison Corporation.

Ratings assigned:

Avery Dennison Holding & Finance The Netherlands BV - rating for Euro commercial paper at Prime-1.

Avery Dennison Investments The Netherlands BV - rating for Euro commercial paper at Prime-1.

Ratings affirmed:

Avery Dennison Corporation - rating for Euro commercial paper, US commercial paper, extendible commercial notes, and callable commercial notes at Prime-1.

Avery Dennison Corporation - medium term notes at A2

The Jackstadt acquisition increased Avery's debt to over $1.1 billion and raised short-term debt to over $550 million. In addition, Avery has roughly $150 million of medium term notes maturing in 2003 and 2004 and may elect to refinance the existing debt at Jackstadt. The continuation of the A2 and Prime-1 ratings anticipates that management will term-out a significant portion of its short-term debt over the next two months to avoid any potential constraint on liquidity.

Avery has a liquidity profile that is sufficient for a Prime-1 rating. The company is authorized to issue $1 billion of commercial paper (CP), but has capped the program at $450 million so that it is fully backed by committed facilities - a $250 million 5-year credit facility maturing in June 2006 and a $200 million 364-day facility. In addition, Avery has the ability to issue $100 million of Extendible Commercial Notes and $150 million of Callable Commercial Notes. Due to Avery's size and credit quality, we do not believe that the ECNs or CCNs need to be fully supported by a backstop facility. However, we anticipate that ECN and CCN obligations will be refunded or paid off well in advance of any maturity date on these obligations.

Avery's long-term debt ratings are based on the company's strong market positions and leading technology in branded office products and self-adhesive films. Avery is a global leader in the pressure sensitive adhesives, office labels and other industrial marking systems. In the past two years, Avery's debt protection measurements have weakened due to the pace of acquisitions, significant share repurchases, a high dividend payout and modest increases in working capital. The purchase of Jackstadt has placed additional stress on the company's credit profile. However, the substantial overlap in operations should accelerate the generation of synergies and raise free-cash flow above $150 million in the next twelve months. The outlook on Avery's long-term debt remains negative due to current level of debt, the risks associated with integration and generation of synergies in the Jackstadt acquisition, and concerns that the current economic environment may limit the company's ability to generate enough free cash flow to reduce debt and return debt protection measurements to acceptable levels over the next 12 - 18 months.

The A2 and Prime-1 ratings anticipate that management will utilize all excess cash flows and avoid any significant acquisitions to reduce debt over the next 18-24 months, thereby significantly improving debt protection measurements. In addition, the ratings assume that Avery can return EBITA to interest coverage to 9-10 times, cash flow from operations less dividends to total debt to 40-45%, and raise free cash flow above $150 million. Furthermore, Moody's has incorporated only modest synergies from the Jackstadt acquisition during this timeframe.

Avery Dennison, headquartered in Pasadena, California is a leading supplier of pressure sensitive adhesives and materials, office products, labels and other industrial marking systems. The company reported sales of $3.8 billion in 2001.

New York
Richard Stephan
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Rogers
VP - Senior Credit Officer
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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