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Announcement:

Moody's changes CEDC's rating outlook to stable from positive

Global Credit Research - 15 Nov 2010

Approximately USD913 million of rated debt affected

Milan, November 15, 2010 -- Moody's Investors Service has today changed Central European Distribution Corp's ("CEDC" or "the company") rating outlook to stable from positive, following weaker-than-expected operating performance so far in 2010 and Moody's expectation that future financial deleveraging might be slower than previously anticipated. The B1 corporate family rating (CFR) and probability of default rating (PDR) on CEDC as well as the B1 ratings on the senior secured notes issued by CEDC Finance Corporation remain unchanged.

"The change of outlook back to stable reflects CEDC's weaker-than-expected operating results during 2010 due to adverse market conditions in both Poland and Russia, as a result of subdued consumption and particularly hot weather," said Paolo Leschiutta, Moody's lead analyst for CEDC. "The stabilisation of the outlook also reflects Moody's view that the company will be more challenged in reducing its financial leverage in the future. The positive outlook was based on the expectation that CEDC would have maintained financial leverage, measured as debt-to-EBITDA adjusted for operating leases, at around 4x by FYE 2010, which seems now unobtainable given the company reported EBITDA of approximately USD108 million for the nine months to 30 September 2010. In addition, Moody's expects lower-than-previously-anticipated deleveraging for years to come and notes the modest covenant headroom in September 2010," continued Mr Leschiutta.

Moody's recognises the benefits of the full integration of Russian Alcohol Group (RAG) since late 2009, although CEDC's results for the nine months ending 30 September 2010 were affected by a number of exceptional items including the soft economic environment and adverse weather conditions, which resulted in vodka market contraction of around 6-8% in Poland and 12-15% in Russia. On top of this, CEDC results were also affected by a negative sales mix (overall in Russia) due to consumers down trading. Moody's also notes CEDC's ongoing negotiation to acquire the stakes it does not already own in Whitehall, which might result in an additional acquisition over the near term, and increase CEDC's exposure to the Russian market, representing (as at today) approximately two-thirds of group revenues. Moody's expects ongoing volatility in cash flow generation from the Russian business, which is likely to result in sustained financial leverage.

The stable outlook reflects Moody's expectation that CEDC will still reduce financial leverage over time towards 4x thanks to the strong cash generation characteristics of its business (although the rating agency notes that financial leverage is likely to be around 5x at FYE 2010). The stable outlook also considers the company's target to maintain a financial leverage measured as Net Debt-to-EBITDA below 3.5x on a company reported basis. Ongoing improvements in profitability and cash flow from operating activity, resulting in positive free cash flow and in a reduction of financial leverage (as measured by Moody's) towards 3.5x are likely to place upward pressure on the ratings. However, further deterioration in operating performance and sizeable debt-financed acquisitions, resulting in a sustained increase in financial leverage above 5x, are likely to result in downward rating pressure. Any further deterioration in volumes in either Poland or Russia might also lead to a rating downgrade.

The previous rating action on CEDC was implemented on 12 November 2009, when Moody's changed the outlook to positive and assigned a P(B1) rating to the proposed notes issuance.

The principal methodology used in rating CEDC was Moody's Global Alcoholic Beverage Rating Methodology, published in August 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Warsaw, Poland, CEDC is the largest vodka producer in the world, with annual sales of around 30.1 million nine-litre cases, mainly in Russia and Poland. Following investments in Russia over the last two years and the recent disposal of its distribution business in Poland, CEDC generated net revenues of around USD483 million during the first nine months of 2010.

Milan
Paolo Leschiutta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy

Moody's changes CEDC's rating outlook to stable from positive
No Related Data.
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