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Rating Action:

MOODY'S DOWNGRADES BPB'S LONG-TERM DEBT RATING TO Baa1 FROM A3 FOLLOWING ACQUISITION ANNOUNCEMENT; RATING OUTLOOK IS CHANGED TO STABLE

13 Mar 2002
MOODY'S DOWNGRADES BPB'S LONG-TERM DEBT RATING TO Baa1 FROM A3 FOLLOWING ACQUISITION ANNOUNCEMENT; RATING OUTLOOK IS CHANGED TO STABLE

Approximately $350 Million of Debt Securities Affected.

Frankfurt, March 13, 2002 -- Moody's Investors Service today downgraded to Baa1 the A3 rating of BPB's senior debt. The rating outlook is changed to stable from negative. - Today, BPB plc ("BPB") announced that it has reached agreement for the purchase of the US wallboard business of building materials firm James Hardie, Hero Gypsum ("Hero") subject to regulatory approval. The purchase consideration is US$345 million (GBP243 million) in cash on a debt-free basis and will be financed using existing committed facilities and new equity. The proposed price represents a 4.3 mid-cycle EBITDA multiple.

Moody's has downgraded the long-term rating because of BPB's continued demonstration of its willingness to participate actively in the industry's trend for consolidation via largely debt financed acquisition. BPB seems prepared to employ on a sustained basis higher levels of debt to effect this strategy resulting in increasing financial leverage. This is only balanced by operating cash flows that are better reflected in a Baa1 rating for the Group's senior debt.

Moody's believes that even when considering that the financing of the transaction will involve roughly a 40% equity portion, the resulting leverage -in the light of the incremental cash flow will be at a level no longer commensurate with the former rating. With the decision to continue to build market share by debt financed acquisitions, Moody's expects BPB's financial flexibility to become more limited. The rating agency said that the current rating assumes no further acquisitions at the size of the current Hero transaction over the next 12 to 18 months and that likely smaller "bolt-on" transactions will be funded in a prudent manner so that the financial fundamentals (ability to service debt, financial leverage) will continue to support the current Baa1 rating.

U.S. plasterboard industry is recovering from a price war which had caused plasterboard prices to fall to a 10 year low of around US$ 65 msqf (million square feet) in early 2001. This compares to a all-time high of US$$ 165 msqf in late 1999. Currently prices have improved to around US$ 90 msgf due to continued buoyant demand together with the effects of industry consolidation (during the last 5 years, industry players reduced from 15 to 8) which resulted in plant closures. Moody's understands that currently BPB's plants are running at full capacity and demand is such that price increases have already been initiated this year . This in combination with a demand/capacity equilibrium possible by 2003/2004 bodes well for positive development of BPB's operating performance.

Moody's also considered BPB's focused business strategy and efficient cost control practices. BPB has built a very strong position in its traditional markets, and is expected to remain the low cost producer in its industry. Plasterboard is one of the few growth areas (plus 2% over GDP through the cycle) in the buildings material/construction industry given its versatility, technical properties and -last not least- price advantage over traditional building methods. Moody's has considered BPB's effective internal and external benchmarking practices and the successful efforts to apply the best practices throughout the Group. Moody's expects that these practices will also be effectively applied to Hero.

By acquiring Hero, the combined group will become the 3rd largest plasterboard producer in the U.S. with a C.16% market share , and ,as a result of the huge size of the North American market (over 50% of world demand), it will be the largest supplier globally. Synergies are expected to be in the range of US$ 15 million p.a.. Moody's understands that the integration of a comparable previous acquisition ("Celotex" in early 2000/01) has been successfully completed in the meantime.

BPB plc is one of the world's largest gypsum groups and a leading supplier of building materials in Europe, Canada and South Africa, with significant positions in the US, South America and Asia The group manufactures an extensive range of plasterboards, plasters, ceiling tiles and insulation products.. Fiscal 2001 (March31) revenues amounted to GBP 1.59 billion.

London
Stuart Lawton
Managing Director
European Corporates
Moody's Investors Service Ltd.
44 20 7772 5454

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

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