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Rating Action:

Moody's concludes review on Pactiv; withdraws sr unsec rating; downgrades notes to Caa1

Global Credit Research - 02 Dec 2010

Approximately $1 billion of rated debt securities affected

New York, December 02, 2010 -- Moody's Investors Service ("Moody's") withdrew the Baa2 senior unsecured rating of Pactiv Corporation ("Pactiv") and concluded the review for downgrade intiated on August 17, 2010 following the company's announcement of a definitive merger agreement to be acquired by Reynolds Group Holdings Limited ("RGHL"). Pactiv's senior notes were downgraded to Caa1 from Baa2 as they remain outstanding and will be assumed by RGHL (B2, Negative) .

The rating action reflects the results of Pactiv's tender offer for its $250 million 6.4% notes due in 2018 and the status of the tender offer for its $250 million 5.875% notes due in 2012.

Moody's took the following rating actions:

-Withdrew Pactiv's Baa2 senior unsecured rating

-Downgraded $276.79 million of 7.950% notes due 12/15/2025 to Caa1 (LGD 6,92%) from Baa2

-Downgraded $300 million 8.125% bonds due 6/15/2017 to Caa1 (LGD 6,92%) from Baa2

-Downgraded $200 million 8.375% notes due 4/15/2027 to Caa1 (LGD 6, 92%) from Baa2

-Downgraded $250 million 5.875% notes due 7/15/2012 ($249 million outstanding as of November 29, 2010) to Caa1 (LGD 6, 92%)

-Downgraded $250 million 6.4% notes ($16 million outstanding, as of November 16, 2010) due 1/15/2018 Caa1 (LGD6, 92%) from Baa2

The rating outlook is revised to negative from under review for downgrade.

RATINGS RATIONALE

The actual financing of the acquisition is overall in line with what Moody's expected on 9 September 2010 when it changed the outlook on RGHL's B2 corporate family rating to negative from stable and assigned provisional ratings for the acquisition debt and indicated that Pactiv notes could be downgraded to Caa1.

The noteworthy exceptions are (i) that the actual amount of senior secured incremental term loans increased to USD 2,020 million (from USD 1,500 million expected previously) and the amount of senior secured notes reduced to USD 1,500 million (from USD 2,000 million expected previously), and (ii) that only USD 235 million of notes were repaid and canceled as result of Pactiv's tender offer for its 2012 notes and 2018 notes so far (USD 500 million expected previously). While the tender period for the 2018 notes has been closed (USD 234 million tendered) the tender offer for the notes due 2012 is still open. So far only approximately USD 700,000 were tendered compared to the USD 250 million we expected previously. However, given the relative small size of the 2012 notes issues in relation to RGHL's total debt amount the final outcome of the tender will have no material effect on the ratings.

RGHL funded the acquisition partially with (i) new senior secured incremental term loans of USD 2,020 million, (ii) USD 1,500 million senior secured notes and (iii) USD 1,500 million senior unsecured notes. Prior to closing, these funds had been placed into escrow accounts. As the acquisition has closed Moody's changes the provisional (P)Ba3 (LGD2 -- 28%) debt ratings for the senior secured incremental term loans of USD 2,020 million and the USD 1,500 million senior secured notes to Ba3 (LGD2 -- 28%). The provisional (P)Caa1 (LGD5 -- 81%) debt ratings for the senior notes was changed to Caa1 (LGD5 -- 77%).

As outlined in Moody's Credit Opinion for RGHL dated 15 September 2010 the negative rating outlook reflects the company's stretched financial metrics based on a pro forma assessment of the Pactiv acquisition and the related financing. The outlook could, however, be stabilized if leverage returns to levels of 6x debt/EBITDA. The rating could be upgraded if the group's performance remains resilient, with solid profit margins that allow for notable free cash flow generation, along with a reduction of leverage to around 5x debt/EBITDA on a sustainable basis. The rating could be downgraded if the group is unable to generate positive free cash flows, if leverage cannot be reduced to around 6x debt/EBITDA within the next 12-18 months, and in case of further major debt-financed acquisitions. Furthermore, a tightening of financial covenant headroom or a weakening of RGHL's liquidity situation would put pressure on the rating.

Reynolds Group Holdings Limited is a leading global manufacturer and supplier of food and beverage packaging and consumer storage products. It manufactures aseptic packaging products for the food and beverage industry (SIG), consumer packaging products (Reynolds Consumer) and closures for the beverage, dairy and food segment (CSI). Through the acquisition of Evergreen Packaging in May 2010, the group also got exposure to the fresh carton packaging market as well as the uncoated freesheet and coated groundwood paper market. Pro forma the Evergreen acquisition, the group generated revenues of EUR 3.9 billion, for the fiscal year December 2009.

Headquartered in Lake Forest, Illinois, Pactiv Corporation is a producer of packaging products for the consumer, foodservice, and food packaging markets. Revenue for the twelve months ended September 31, 2010 was approximately USD3.5 billion.

Pro forma the Pactiv acquisition the combined group has close to USD 10 billion of revenues and approximately USD 1.8 billion EBITDA as adjusted by Moody's on an LTM basis as per June 2010. Close to two thirds of revenues are generated in North America. The remaining revenues are generated primarily in Europe and the emerging markets of Asia and Latin America.

The principal methodologies used in this rating were Global Packing Manufacturers: Metal, Glass, and Plastic Containers published in June 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Edward Schmidt
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's concludes review on Pactiv; withdraws sr unsec rating; downgrades notes to Caa1
No Related Data.
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