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Rating Action:

Moody's upgrades Rexel to Ba3 from B1; stable outlook

Global Credit Research - 08 Mar 2011

London, 08 March 2011 -- Moody's Investors Service has today upgraded Rexel SA's ("Rexel" or "the company") Corporate Family Rating (CFR) to Ba3 from B1 and Probability of Default Rating (PDR) to Ba3 from B1. Concurrently, Moody's upgraded to Ba3 from B1 the rating on Rexel's EUR650 million senior unsecured Notes (due in 2016). The short-term rating of the company's EUR500 million commercial paper programme remains NP. The outlook on all ratings is stable.

RATINGS RATIONALE

"The upgrade to Ba3 reflects Moody's recognition of the company's improved operating performance and solid cash generation resulting in deleveraging throughout 2010", says Douglas Crawford, Moody's lead analyst for Rexel."The upgrade also assumes that the company will maintain these current financial metrics."

The Ba3 CFR reflects Rexel's investment grade business risk profile as a leading global distributor of low voltage electrical products with a substantial revenue base. The company's business profile is further supported by strong market positions in various European countries, with either number one or two market rankings in most Western European and North American countries.

The ratings also reflect the company's high leverage, and uncertainty about the pace at which credit metrics might improve given the global macroeconomic uncertainties prevailing and the late-cycle nature of the industry in which Rexel operates. However, the rating also incorporates the positive steps taken by Rexel to improve its margins, as evidenced in 2010 results; as well as its debt reduction and the strong intention to reduce leverage over the medium term.

In 2010, the company's reported revenue increased 6%, mainly as a result of FX gains but also due to organic growth, which has accelerated in all regions in 2H2010. This, combined with improved purchasing conditions in Europe and a better channel mix in North America as well as significant cost-cutting translated into a 31% increase in reported EBITA. Moreover free cash flow as reported by the company before interest and tax of EUR570 million was higher than Moody's expected. Net debt/EBITDA (as adjusted by Moody's) fell from 5.3x to 4.4x and is now within the parameters previously outlined to upgrade the rating.

Moody's expects that these positive trends will continue through 2011, leading to steady deleveraging through growth in EBITDA. However, Moody's believes that free cash flow generation in 2011 will be lower than in 2010, mainly because of the resumption of dividend payments as leverage is below restricted payment covenant levels. Moody's also anticipates that much of Rexel's free cash flow may be applied to ongoing bolt-on M&A activity rather than further debt reduction.

The stable outlook reflects Moody's expectations that the current trends in Rexel's markets remain favourable and assumes that the group will maintain adequate liquidity going forward, underpinned by EUR685 million of undrawn credit facilities and EUR246 million cash and equivalents on balance sheet net of overdrafts. The stable outlook also reflects Moody's expectation that the company will refrain from any material share repurchases and/or acquisition activity over the medium-term.

Positive rating pressure could develop if market conditions lead to net leverage (as adjusted by Moody's) falling below 4x while maintaining RCF/net debt well above 15%. Negative rating pressure could quickly materialise if net leverage (as adjusted by Moody's) rises to over 4.5x or RCF/net debt falls towards 10%. Also, a large debt-financed acquisition or material share repurchases could impact the company's rating given current macroeconomic uncertainties.

Moody's assigned Rexel's ratings by evaluating factors that the rating agency believes are relevant to the credit profile of the issuer, such as: (i) the business risk and competitive position of Rexel; (ii) the capital structure and financial risk profile of the company; (iii) the projected performance of the company over the short to medium term; and (iv) management's track record and tolerance for risk. Having compared Rexel's attributes with those of other issuers both within and outside of its core industry, Moody's believes the company's ratings to be comparable to those of other issuers of similar credit risk.

The principal methodology used in this rating was Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Rexel is a leading global distributor of low voltage products. For 2010, it reported total sales and EBITA of EUR11.9 billion and EUR616 million respectively. Although Rexel is listed, with a market capitalization of EUR4.5 billion, about 72% is owned by a group of private equity sponsors, predominantly Clayton Dubilier & Rice, Eurazeo and Merrill Lynch Global Private Equity. A shareholders' agreement (that expires in 2012) allows these three parties together to appoint eight members of Rexel's Supervisory Board.

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.

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.

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

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Rexel to Ba3 from B1; stable outlook
No Related Data.
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