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Rating Action:

Moody's downgrades Steinhoff to Caa1 corporate family rating, rating on review for further downgrade

28 Dec 2017

London, 28 December 2017 -- Moody's Investors Service has downgraded the ratings of Steinhoff International Holdings N.V. (Steinhoff) and Steinhoff Investment Holdings Limited by assigning Caa1 Corporate Family Ratings to the two companies and B3.za national scale Corporate Family Rating to Steinhoff Investment Holdings Limited .

At the same time, Moody's downgraded the backed senior unsecured notes rating of Steinhoff Europe AG to Caa1 from B1.

Moody's has also assigned Caa1-PD probability of default ratings (PDR) to Steinhoff and Steinhoff Investment Holdings Limited.

Concurrently, and in line with Moody's practice for corporates with non-investment-grade-ratings, Moody's withdrew the B1 issuer rating assigned to Steinhoff and B1/Baa3.za issuer ratings assigned to Steinhoff Investment Holdings Limited . Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

All the ratings remain under review for further downgrade.

RATINGS RATIONALE

Steinhoff's CFR and Moody's review of its CFR for further downgrade reflect the increasing pressure on the company's liquidity profile. The situation has been compounded by its operating companies placing an additional liquidity burden on Steinhoff's centralized treasury function to fund their working capital needs. Moody's notes that the operating companies have experienced a reduction or cancelation of credit insurance lines in recent weeks, with credit facilities increasingly being suspended or withdrawn.

Consequently, Steinhoff's liquidity levels could prove insufficient to sustain its European operations in the near term if it is unable to shore up its cash balances or other sources of liquidity.

Moody's recognizes that the company maintains various means with which to strengthen its liquidity profile. For example, Steinhoff is seeking to improve credit insurance coverage, raise new credit facilities at its operating companies and repatriate cash proceeds from the sale of listed equity investments in South Africa. However, the timing and proceeds of these measures is uncertain at this time.

The CFR also takes into consideration the company's substantial debt maturities during 2018, amounting in aggregate to €1.47 billion as reported by the company. The ongoing investigations into Steinhoff's alleged accounting irregularities could make it challenging to either repay or refinance these debt maturities.

Steinhoff's CFR continues to incorporate its: 1) large scale; 2) business and geographic diversity; 3) concentration of EBITDA in Europe; and 4) the likely volume-driven cost benefits from its position as a large-scale vertically integrated retailer. The rating also considers Steinhoff's other strengths, including its market share in the mass discount market, where it has been growing revenues. Specifically, the company's operational profile reflects its exposure to the better performing economies in Europe.

The rating recognizes the financial flexibility offered by Steinhoff's listed investments and its predominantly unencumbered European property portfolio spanning retail, warehousing and manufacturing. However, under the current circumstances, Steinhoff may not be able to monetize these assets in a timely manner.

The assessment of Steinhoff's credit profile is made difficult by its complex corporate legal structure and financial reporting considerations, which are a result of the company's rapid expansion through acquisitions.

The opacity has been further exacerbated by the uncertainty around accounting irregularities that its Board had flagged on 6 December 2017. This situation has resulted in an independent investigation, as well as confirmation by Steinhoff, on the advice of the independent committee of the Supervisory Board, that the 2016 financial statements will have to be restated, with the possibility that results for prior years may also be restated.

Moody's review will focus on Steinhoff's liquidity profile and its ability to address debt obligations in the course of 2018. Its rating could come under further downward pressure if it cannot address these near term demands.

Based on its financial report for the six months ended 31 March 2017, Steinhoff Europe AG, which is 100% owned by Steinhoff, reported total revenue of approximately €6 billion.

Steinhoff Europe AG is the issuing entity for the €800 million 1.875% notes due 2025 and guaranteed by Steinhoff. Steinhoff Europe AG is directly held by Steinhoff Möbel Holding Alpha GmbH, which in turn is held by Steinhoff Finance Holding GmbH. All three of these entities are 100% owned by Steinhoff.

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

The Local Market analyst for this rating is Douglas Rowlings, +971-4-237-9543.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Vincent Gusdorf
Vice President - Senior Analyst
Corporate Finance Group
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David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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