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Rating Action:

MOODY'S DOWNGRADES ABB'S SENIOR DEBT RATINGS TO Baa2 (FROM A3) AND ITS RATING FOR SHORT-TERM DEBT TO PRIME-3 (FROM PRIME-2); RATINGS REMAIN ON REVIEW FOR POSSIBLE FURTHER DOWNGRADE

25 Mar 2002
MOODY'S DOWNGRADES ABB'S SENIOR DEBT RATINGS TO Baa2 (FROM A3) AND ITS RATING FOR SHORT-TERM DEBT TO PRIME-3 (FROM PRIME-2); RATINGS REMAIN ON REVIEW FOR POSSIBLE FURTHER DOWNGRADE

Approximately $5 Billion of Debt Securities Affected.

Frankfurt, March 25, 2002 -- Moody's Investors Service has downgraded the senior debt ratings of ABB Ltd. (ABB) and its guaranteed financial subsidiaries to Baa2 from A3 and lowered to Prime-3 from Prime-2 the company's ratings for short-term debt. The rating downgrade follows the challenges faced by ABB to secure longer term funding on acceptable terms, and the decision to draw the full amount available under an existing $3 billion credit facility. It also reflects the execution risk associated with key components of its financing plan, namely asset disposals and capital market access. Moody's said that the Baa2 rating assumes that ABB's banks will provide continuous support, and that a refinancing or a replacement of the facility is likely to be achieved. The long- and short-term ratings remain under review for possible further downgrade, pending finalization of the refinancing plan. Moody's expects to conclude its rating review shortly, most likely within the next three weeks.

Moody's said that the downgrade reflects ongoing challenges facing ABB as a result of its high leverage and modest operating cash flow amidst a weak operating environment. Moody's expects that ABB's cash flow will be deeply negative in the coming months due to $2.0 billion of maturing debt and commercial paper, coupled with seasonal uses of cash flow under its regular business pattern. The company has indicated that it intends to close this funding gap using freely available cash in the $1.8 billion range, asset disposals, capital market access, and through the $3 billion drawn under the bank facility (or under a renegotiated bank facility in a similar amount). Moody's said that the decision to draw on the bank facility has increased ABB's very near-term cash position, but has also increased the execution risk associated with management's refinancing plan. The drawn bank facility incorporates a rating trigger that provides a 15 working day period to renegotiate the terms of the facility. If the facility were not successfully renegotiated, the full amount drawn would become due and payable under the terms of the facility.

Moody's said that the Baa2 rating assumes that ABB's banks will provide continuous support, and that a refinancing or a replacement of the facility is likely to be achieved. In Moody's view, this step is necessary to allow the company to retain an investment grade rating. However, the rating also reflects Moody's expectation that current market conditions will complicate ABB's plans to secure incremental financing from its banks and the capital markets, such that the terms and conditions of new financing will likely be more onerous than existing borrowing. This could potentially lead to contractual subordination for unsecured bondholders.

Moody's added that the current rating incorporates ABB's dependence on further asset sales and capital market access to secure a long-term solution for ABB's liquidity and capital structure. The rating also reflects ABB's good business fundamentals, its anticipated relatively weak business performance in 2002, and the medium-term risks associated with its asbestos exposure.

Ratings downgraded are:

ABB Ltd. - Issuer Rating to Baa2 from A3

ABB Holdings, Inc. - Bkd Issuer Rating to Baa2 from A3

ABB International Finance Limited - Bkd Senior Unsecured to Baa2 from A3

ABB Asea Brown Boveri Ltd. - Issuer Rating and Senior Unsecured to Baa2 from A3

ABB Finance Inc. - Bkd Senior Unsecured to Baa2 from A3

ABB Capital B.V. - Bkd Senior Unsecured to Baa2 from A3

ABB Financial Services Australia Ltd. - Bkd Senior Unsecured to Baa2 from A3

Short-term ratings lowered are:

ABB Ltd. - Short-term Issuer Rating to Prime-3 from Prime-2

ABB Treasury Center (USA) Inc. - Bkd Commercial Paper to Prime-3 from Prime-2

ABB Capital B.V. - Bkd Commercial Paper to Prime-3 from Prime-2

ABB Financial Services Australia Ltd. - Bkd Short-term Debt to Prime-3 from Prime-2

ABB Ltd., headquartered in Zurich, Switzerland, is a global engineering group with leading positions in power and automation technology products serving the manufacturing, process and consumer industries, utilities, and the oil and gas market. In fiscal 2001 the group generated total revenues of almost US$24 billion.

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

Frankfurt
Wolfgang Draack
VP - Senior Credit Officer
European Corporates
Moody's Deutschland GmbH
+49 69 707 30 700

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