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Rating Action:

Moody's upgrades Gerresheimer to Ba1, outlook stable

18 Feb 2011

Approximately EUR 126 million of rated debt affected

Frankfurt am Main, February 18, 2011 -- Moody's Investors Service has today upgraded Gerresheimer AG's corporate family rating (CFR) to Ba1 from Ba2. Concurrently, the rating agency has upgraded to Ba2 (Loss Given Default assessment of LGD6 -- 90%) from B1 (LGD6 -- 91%) the rating on the senior subordinated notes issued by Gerresheimer Holdings GmbH, a subsidiary of Gerresheimer AG. The outlook on the ratings is stable.

RATINGS RATIONALE

"Today's upgrade reflects Gerresheimer's further progress in improving its credit metrics in 2010, as evidenced by strengthened leverage ratios, including a debt/EBITDA ratio of 2.8x on a Moody's adjusted basis," says Rainer Neidnig, a Moody's Assistant Vice President and lead analyst for Gerresheimer. "Given Gerresheimer's resilient operating and financial performance during the recession which has evidenced a limited exposure to the economic cycle, Moody's considers that leverage ratios at levels of 3x debt/EBITDA adequately position the rating in the Ba1 category," adds Mr Neidnig.

Moreover, the rating incorporates Gerresheimer's balanced financial policy, as evidenced by the group's decision to temporarily suspend dividend payments during the financial crisis and to abstain from M&A activity in recent years. Although management is again exploring selective acquisitions in order to generate further profitable growth, Moody's does not expect that the group's leverage ratios will materially weaken on a prolonged basis as a result of potential M&A activity.

Gerresheimer reported results for the fiscal year ended November 2010 on 10 February 2011. The group's sales increased moderately to EUR1.02 billion, from EUR1.0 billion in 2009, which represents organic revenue growth of 4.0% on a comparable basis and at constant foreign exchange rates. Gerresheimer's profitability recovered to pre-crisis levels after a moderate decline in 2009. Moreover, the group reported positive free cash flow (FCF) of EUR84 million, which allowed it to further reduce its debt. Against this backdrop, leverage decreased to 2.8x, from 3.4x in 2009.

Moody's notes that Gerresheimer's FCF in 2010 was supported by the temporary suspension of dividends and a slight decline in capital expenditures. However, the rating agency expects the group to remain FCF positive, despite its announced resumption of dividend payments and a moderate increase in capital expenditures.

The upgrade to Ba2 from B1 of Gerresheimer's EUR126 million worth of senior subordinated notes is in line with Moody's Loss Given Default Methodology and driven primarily by the upgrade of the group's CFR.

Gerresheimer's ratings are based on: (i) the group's current profitability levels; (ii) a debt/EBITDA ratio of around 3.0x; and (iii) the group's ability to generate positive FCF. Positive rating pressure could build up if Gerresheimer were able further grow the business profitably and further reduce leverage ratios, including achieving a debt/EBITDA ratio of 2.5x on a sustainable basis. However, an upgrade to Baa3 would also require further evidence of a balanced financial policy on a long term basis or a commitment by management to achieve ratios that are in line with investment-grade levels.

Moody's could consider downgrading Gerresheimer if the group's profitability were to come under pressure, resulting in negative FCF and its debt/EBITDA ratio weakening to 3.5x or higher. Smaller bolt-on acquisitions are incorporated into the rating. However, negative rating pressure could also build if Gerresheimer were to engage in larger transactions and fail to return to a debt/EBITDA ratio of 3.0x in the intermediate term.

Moody's previous rating action on Gerresheimer was implemented on 22 April 2010, when the rating agency (i) affirmed the company's Ba2 corporate family rating and B1 rating on the EUR126 million worth of senior subordinated bond issued by Gerresheimer Holdings GmbH; and (ii) changed the outlook on the ratings to positive from stable.

The principal methodologies used in this rating were Global Packaged Goods Industry published in July 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Upgrades:

..Issuer: Gerresheimer AG

.... Probability of Default Rating, Upgraded to Ba1 from Ba2

.... Corporate Family Rating, Upgraded to Ba1 from Ba2

..Issuer: Gerresheimer Holdings GmbH

....Senior Subordinated Regular Bond/Debenture, Upgraded to Ba2, LGD6, 90% from B1, LGD6, 91%

....Senior Subordinated Regular Bond/Debenture, Upgraded to Ba2, LGD6, 90% from B1, LGD6, 91%

Outlook Actions:

..Issuer: Gerresheimer AG

....Outlook, Changed To Stable From Positive

..Issuer: Gerresheimer Holdings GmbH

....Outlook, Changed To Stable From Positive

Headquartered in Duesseldorf, Germany, Gerresheimer AG is the parent company of the Gerresheimer group, a leading producer of specialty glass and plastic packaging solutions primarily for the pharmaceutical and life science industry. The group's revenues in the fiscal year ending November 2010 amounted to EUR1.02 billion. The group currently employs approximately 9,500 staff and operates 40 production facilities in Europe, America and Asia. Gerresheimer AG is publicly listed and 100% of its shares are in free float.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties 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.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

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.

Frankfurt am Main
Rainer Neidnig
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Gerresheimer to Ba1, outlook stable
No Related Data.
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