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Rating Action:

MOODY'S CONFIRMS SAINT GOBAIN'S SENIOR DEBT RATINGS AT A2 AND ITS SHORT-TERM DEBT RATING AT PRIME-1; NEGATIVE OUTLOOK ASSIGNED

27 Feb 2003
MOODY'S CONFIRMS SAINT GOBAIN'S SENIOR DEBT RATINGS AT A2 AND ITS SHORT-TERM DEBT RATING AT PRIME-1; NEGATIVE OUTLOOK ASSIGNED

Approximately $5.3 Billion of Debt Securities Affected

Frankfurt, February 27, 2003 --

Today, Moody's Investors Service confirmed the ratings for senior debt of Compagnie de Saint-Gobain S.A. ("SG") at A2 and its short-term debt at Prime-1. The outlook for the ratings was changed to negative.

Moody's rating confirmation is based on our expectation that Saint-Gobain's operating performance will continue to be relatively stable and that the company will continue to reduce debt and improve liquidity in the face of some continued uncertainty regarding its exposure to asbestos. Based on information that is available to date, we believe that Saint-Gobain will be able to cope with the likely future cash impact of asbestos settlements, even though the insurance coverage (which so far had effectively limited the related cash drain) is running-out over the medium term. The negative outlook reflects the rating agency's view that the highly unpredictable nature of asbestos-related claims and litigation will continue to create some uncertainty for debt holders and that Saint-Gobain will face challenges in maintaining a stable operating performance if the current negative economic environment continues.

The following ratings were confirmed:

Compagnie de Saint-Gobain S.A.: -- senior unsecured - A2

Saint-Gobain Nederland B.V.: -- senior unsecured - A2

Compagnie the Saint-Gobain S.A.: -- short term rating - Prime-1.

In fiscal 2002, SG recorded a €100 million (pre-tax) asbestos related provision in addition to its remaining insurance. This is reflective of the company's conservative policy to maintain a sufficient coverage of asbestos related claims and associated costs. At the current level the combined amount should cover gross payments for the next four to five years. After reviewing several hypothetical scenarios, the agency believes that even considerable increases of asbestos payments going forward would not significantly alter SG's ability to meet its financial obligations, in fact the company should still be able to decrease its financial leverage. This is supported by the substantial free cash flow after capex in the range of approx. €1.3 billion in addition to the remaining insurance/provision coverage.

In 2002, SG's cash generation has been in line with expectations. The company managed to significantly reduce its financial leverage, despite the difficult market environment in most of its key markets and business segments. The agency believes, that scale and scope of the company's operations allow for a continued stable cash flow generation going forward. Management's ongoing commitment to debt reduction is reflected in capping capex, refraining from the pursuit of large-scale acquisitions, all aimed at preserving financial flexibility. As a result, Moody's believes that SG's should be able to return to debt protection measurements in the mid-30% range (Retained Cash Flow coverage of Net Debt), commensurate with the current rating category in the near to medium term.

The rating confirmation also considers improvements in the SG's liquidity situation from the terming out of its maturity profile and a sizeable free cash flow after capex. Furthermore, Moody's understands that management has re-negotiated available committed facilities totalling € 2.5 billion in a way that they no longer contain MAC clauses, which could impair availability in a hypothetical stress scenario. Unified financial covenants (2x-Interest Cover, <4x Debt/Cash Flow) under the respective loan documentations leave the company with sizeable headroom and thus financial flexibility. Overall, SG's available cash and marketable securities, its committed credit facilities and cash flow generation ability provide a sound liquidity cushion to cover short terms calls on cash.

The negative rating outlook reflects Moody's principal concerns relating to the long-term uncertainty surrounding the company's asbestos liabilities, in particular, the overall development of potential new claims against SG. Until an improving trend in newly filed claims is clearly evident, the rating agency considers that some potential for adverse developments related to asbestos will continue to exist. In addition, SG faces the challenge to maintain a stable operating performance given the adverse economic environment in some of its key markets.

Saint-Gobain, headquartered in Paris, is a leading international producer and distributor of glass products, industrial ceramics and building materials. It reported fiscal 2002 group sales of EUR 30.3 billion.

Frankfurt
Dr. Juergen Berblinger
Managing Director
European Corporates
Moody's Deutschland GmbH
+49 69 707 30 700

Frankfurt
Heiko Neumann
Vice President - Senior Analyst
European Corporates
Moody's Deutschland GmbH
+49 69 707 30 700

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