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Rating Action:

Moody's changes outlook on Head NV's ratings to stable

Global Credit Research - 18 May 2010

Approximately EUR28 million of rated debt

Milan, May 18, 2010 -- Moody's Investors Service has today changed the outlook to stable from negative on the Caa1 corporate family rating (CFR) and probability of default rating (PDR) of Head NV (Head) and on the senior unsecured Caa3 rating on the notes issued by HTM Sport GmbH. The rating action reflects modest improvements in Head's operating leverage and financial and liquidity profiles, and Moody's expectation that the company will be in a better position to withstand adverse market conditions going forward.

Today's rating action recognises that Head has been able to reduce the negative impact of the global recession, improving its credit profile, which is now more solidly positioned in the Caa1 category. During 2009, the company undertook a number of extraordinary -- but also ordinary -- restructuring measures, including the private exchange offer of the existing senior unsecured debt which resulted in debt reduction. The company's liquidity profile has also improved significantly, also thanks to the sale of Head's trademark in Korea, with the company reporting EUR68 million of cash on balance sheet as at March 2010. In addition, the company continued its effort in reducing working capital needs and fixed costs through the relocation of production plants in low-cost countries and increased outsourcing.

Despite the improvement in Head's financial profile, Moody's expects the company's operating performance to remain subdued over the short-to-medium term due to the difficult conditions faced by the diving equipment industry, given its links to the travel industry and the relatively high price points of the products. In addition, although there are mild signs of recovery in demand for Head's winter products, Moody's would expect ongoing volatility in operating performances due to continued softness in consumer spending and sustained price competition. The ratings could be upgraded if the company shows good progress in improving its profitability and cash generation with an EBITA margin increasing towards 4%, an RCF to Net Debt towards high single digits and Debt to EBITDA to reduce significantly below 7x on a sustained basis. Before any consideration is given to an upgrade, Moody's would need to get comfortable on the company's liquidity profile and refinancing strategy going forward.

Although the first quarter is a relatively weak period for the company due to the seasonality of the business, Moody's acknowledges the improvements in operating performance during Q1 2010, with revenues increasing by 6.7% compared to Q1 2009, mainly thanks to growth in the racquet business (+14.4%). Cash flow from operations during the quarter was also particularly strong thanks to better control on working capital and improved operating efficiency.

The Caa3 senior unsecured rating on the bond issued by HTM Sport GmbH -- of which the outstanding amount after the debt exchange is EUR27.7 million as at FYE December 2009 -- reflects its subordinated position in the capital structure relative to EUR43.7 million of new senior notes issued in August 2009 and secured on a pool of inventories, receivables and cash under certain specified conditions. The pool of assets offered as collateral must remain at all times greater than the amount of the new senior secured notes. Moody's acknowledges that the company has, to date, met this requirement, although with narrow headroom.

The last rating action on Head was on 19 August 2009, when Moody's upgraded Head's Probability of Default to Caa1/LD (LD: Limited Default) from Ca and raised the CFR to Caa1 from Ca following the positive conclusion of the debt exchange offer into the new senior secured notes.

The principal methodology used in rating Head was Moody's Global Consumer Durables rating methodology, which can be found at 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.

Located in the Netherlands, Head is a leading global manufacturer and marketer of branded sporting goods serving the winter sport, racquet sports and diving equipment markets, with strong market positions and a good reputation for product innovation. The company reported revenues of EUR319 million at FYE December 2009.

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

Milan
Paolo Leschiutta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Telephone:+39-02-9148-1100

Moody's changes outlook on Head NV's ratings to stable
No Related Data.
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