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Announcement:

Moody's changes the outlook on ThyssenKrupp's Baa3 rating to stable from negative

Global Credit Research - 08 Dec 2010

Approximately EUR 4.5 billion of long-term debt instruments affected

Frankfurt am Main, December 08, 2010 -- Moody's has today changed the outlook on ThyssenKrupp's (TK) long term rating of Baa3 and the short-term rating of P-3 to stable from negative.

The change in outlook has been prompted by the quick and strong turnaround that TK has achieved in the last financial year.

The improvement in profitability and cash flow has helped TK to achieve a debt/EBITDA ratio per financial year ended September 2010 of 4.3x (net debt/EBITDA per September 2010: 3.4x) despite the fact the gross adjusted debt level remained broadly stable in the last financial year. Given the continued positive development and outlook for TK's customer industries, Moody's expects TK's leverage to improve further leading to a stable positioning in the Baa3 rating category in the current financial year.

In addition, Moody's expects that the reduction in capex, that is offset by ongoing high net working capital investments and ramp up costs of the new plants in Brazil and the US, will result only to a slightly negative free cash flow generation in the current financial year, and in the next financial year to a clearly positive free cash flow that would lead to a reduction in the company's net indebtedness.

The rating also takes into account TK's commitment to an investment grade rating which is evidenced by a prudent dividend policy and the ongoing disposal programme which is aimed not only to dispose of non-core assets, but also to generate cash flows that can be used to pay down debt, as well as the very broad product portfolio, which classifies TK not only as a major producer of flat steel in Europe but also with leading market positions in the elevator, plant engineering and materials distribution business. All these businesses help TK to generate more stable, albeit somewhat lower, margins than its peers that are pure steel producers.

Weighing negatively on the rating is the limited vertical integration into raw materials which makes TK largely dependent on the development of iron ore and coking coal prices, and leads to more volatile, and sometimes higher, overall production cost for steel than for its integrated competitors in the industry. However, TK continues to maintain a technological advantage which to some extent also offsets the higher cost structure. It is key for TK's success to maintain its technological leadership in the high quality flat steel segment.

TK's excellent short term liquidity situation is supporting the company's investment grade rating. With limited debt maturities in the next two years of around EUR 1.6 billion and the high cash balance, coupled with the availability of long-term committed credit lines with only one covenant which is not performance related with significant headroom, TK has more than sufficient cash sources available to cover for cash outflows for the next 24 months.

The rating could be downgraded if TK would be unable to evidence its ability to further improve its leverage ratios more commensurate with an investment grade rating, namely debt/EBITDA to around 3.5x and CFO-dividends/debt above 20% in the next 12 months.

Given the continued high, albeit reduced, capex and the high ramp-up costs associated to TK's steel plants in Brazil and the US, leading to continued negative free cash flows in the current financial year a rating upgrade is unlikely. Moody's would consider an upgrade if TK would be able to report a CFO-dividends/debt ratio of well above 25% and debt/EBITDA well below 2.0x on a sustainable basis.

For the assignment of this rating, Moody's has used its methodology for the Global Steel Industry, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Moody's last rating action on ThyssenKrupp was to downgrade the Baa2/P-2 ratings to Baa3/P-3 with a negative outlook on 27 May 2009.

ThyssenKrupp AG is a diversified industrial conglomerate with operations in the carbon steel, stainless steel, elevator, technology and materials distribution industries. TK has leading market positions in each division and is one of the largest steel producers worldwide. The group generated sales of EUR 42.6 billion in the financial year ending in September 2010.

Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
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Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
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Moody's Deutschland GmbH
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Moody's changes the outlook on ThyssenKrupp's Baa3 rating to stable from negative
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