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Rating Action:

Moody's confirms SAS's Corporate Family Rating at Caa1; stable outlook

Global Credit Research - 12 May 2010

Approximately USD150 million in rated debt instruments affected

London, 12 May 2010 -- Moody's Investors Service today confirmed SAS AB's ('the company') Corporate Family Rating at Caa1. The Probability of Default Rating (PDR) was raised to Caa1 from Caa2 and both the senior unsecured and subordinate ratings were confirmed at Caa1 and Caa3, respectively. The outlook is stable. This concludes the review for possible downgrade that was initiated on 11 February 2010.

This rating action reflects predominantly Moody's view that the capital structure has been strengthened following the successful completion the SEK5 billion rights issue, for which SEK4.7 billion in proceeds were obtained net of transaction costs, which is expected to increase the company's pro forma level of financial preparedness (cash plus undrawn facilities as a percentage of revenues) to c.31% from about 16% reported as of March 2010.

As a precondition for the rights issue, the company has also completed the following measures: i) the refinancing of its c.SEK2 billion bonds maturing in 2010, notably via the issuance of two new bonds in the aggregate of SEK2.2 billion (namely SEK 580 million under the MTN program due 2016 and SEK1.6 billion convertible notes due 2015); ii) the extension of four of its revolving credit facilities by one year to 2013, for which Moody's understands that the covenants have been made more flexible; and lastly iii) the company has reached an agreement with flight decks and cabin unions for an additional SEK 500m in savings that will impact results as of April 2010. We believe that these measures, combined with other actions under the 'Core SAS' program, will significantly reduce our earlier liquidity concerns and gradually improve profitability at the airline. The company is further planning to issue SEK1 billion in notes due 2012 to enhance liquidity.

Our stable outlook factors in a number of other factors, such as the company's ongoing Core SAS initiatives. Its total cost savings amount to SEK7.8 billion, of which 63% was reported to have been completed as of March 2010, with the remaining annual earnings effect estimated to amount to SEK4.8 billion in the 2010-2012 period. Structural changes also include capacity and employee reductions, as well as administrative and operational savings. While we expect 2010 will be not be as weak as 2009, we still expect the environment to remain difficult for the European airline industry, as noted in IATA's latest forecasts. In this regard, we expect that SAS will continue to use cash in the current fiscal year but to a lesser degree, such that the level of financial preparedness is likely to weaken during the year, but we expect liquidity to remain sufficient beyond a 12-month horizon.

The stable outlook therefore factors in our expectation of a gradual improvement in metrics and a stabilization in net cash flows over the medium term. The stable outlook does not factor in any potentially significant adverse impact from litigation concerning price fixing that could be announced in the near term. For upward pressure on the rating, we would expect gross leverage (as adjusted by Moody's) to fall below 8x, while maintaining an adequate liquidity profile and adherence to any financial covenants. Conversely, the ratings could come under negative pressure if profitability were not to improve in the current year or if liquidity were once again to come under pressure.

For the assignment of the ratings, Moody's applied its Global Passenger Airlines Rating Methodology published in March 2009 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 the issuer can also be found in the Rating Methodologies sub-directory on Moody's website. Moody's last rating action on SAS AB was on 11 February 2010 when Moody's placed all SAS ratings under review for possible downgrade and lowered the PDR from Caa1 to Caa2.

Headquartered in Stockholm, Sweden, SAS is one of the largest passenger airlines in Europe with c. 25 million passengers flown and total revenues of SEK45 billion in 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

London
Richard Morawetz
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms SAS's Corporate Family Rating at Caa1; stable outlook
No Related Data.
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