Frankfurt am Main, December 05, 2012 -- Moody's Investors Service today assigned a B2 Corporate Family Rating and a B2 Probability of Default Rating to KM Germany Holdings GmbH ("Notes GmbH"), the new holding company of the KraussMaffei Group ("KraussMaffei"). At the same time the rating agency assigned a provisional (P)B2 rating to the EUR325 million senior secured notes due in 2020. The notes are being issued in connection with the acquisition of KraussMaffei by Onex Corporation ("Onex"). Issuers are Notes GmbH and its indirectly wholly-owned subsidiary, KM US Holdings II, Inc. ("NotesCo"). The outlook for all ratings is stable. This is a first time rating for Notes GmbH.

Moody's issues provisional ratings for debt instruments in advance of the final sale of securities or conclusion of credit agreements. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the rated capital instruments. A definitive rating may differ from a provisional rating.

Assignments:

..Issuer: KM Germany Holdings GmbH

.... Probability of Default Rating, Assigned B2

.... Corporate Family Rating, Assigned B2

....EUR325M Senior Secured Regular Bond/Debenture, Assigned (P)B2

....EUR325M Senior Secured Regular Bond/Debenture, Assigned a range of LGD3, 44 %

RATINGS RATIONALE

The assigned B2 corporate family rating is supported by KraussMaffei's strengths with regard to (i) its strong market position, (ii) a unique combination of technologies and (iii) favorable long-term growth drivers. On a more negative note, the rating is constrained by (i) the highly cyclical nature of its main end markets, (ii) a weak level of profitability compared to its direct peers in the industry despite its strong market position, mainly driven by low efficiency in operations, (iii) a relatively low share of service revenues, (iv) a high initial leverage, as well as (v) indications that fiscal year 2012 (ending September 2012) might mark a cyclical peak in order intake and cash flow generation, amid the expectation of a slowdown in growth momentum of the global economy.

Although being a rather mid-sized player with about EUR1.06 billion sales generated in its fiscal year 2012, KraussMaffei is the global leader for plastic system solutions. With its products covering the full range of technologies including (i) injection molding, (ii) extrusion technology as well as (iii) reaction process technology, the company has the broadest product offering in its industry which provides a competitive edge in terms of the ability to provide sophisticated system solutions and access to a wider and more diversified customer base. The company holds top 3 market position in all key plastic processing technologies.

However, KraussMaffei is operating in a highly cyclical market which some competitors try to mitigate by increasing their activities in the more stable and generally more profitable aftermarket. Despite a large installed base and operating one of the largest sales and service network in the industry, KraussMaffei reports only a revenue share of around 20% related to aftermarket business for the fiscal year 2012, which appears to be low compared to industry peers. Husky International Ltd. (B2 stable) for instance generates 50% of its revenues from aftermarket and tooling.

The company's sales split by application shows the diversification of the customer base across several end markets, including but not limited to automotive (30% of 2012 sales), packaging (21%), infrastructure (13%), rubber (9%), and chemicals (8%). The geographical split is well balanced between Western Europe (40% of 2012 sales), North America (13% excluding Mexico) and Emerging markets (47%), which should assist to mitigate the notable exposure to the highly cyclical automotive and related rubber end market (together close to 40% of sales).

The largest near-term challenge for the company is to successfully implement the newly identified extensive restructuring measures as contemplated. We understand that this requires high expenses and cash outflows at the beginning and efficiency gains will gradually phase in over two to three years. Accordingly, we expect EBITA margin as adjusted by Moody's to temporarily decline to around 5% in FY 2013 driven by low cost savings and high restructuring expenses in the first year after closing of the transaction, which will swiftly improve from FY 2014 onwards when efficiency gains accelerate over time.

The rating is supported by our expectation that KraussMaffei will be able to continuously generate positive, albeit modest, free cash flows throughout the next three years despite high interest payments, resulting in a gradual improvement of the company's net debt. However, due to the constant gross debt load and the temporary negative impact of restructuring measures on EBITDA in the first year after closing, leverage ratio as adjusted by Moody's is likely to deteriorate to 5.8x debt / EBITDA per end of FY 2013. However, we expect EBITDA to strengthen with efficiency gains accelerating over time, which should allow KraussMaffei to swiftly reduce its leverage to well below 5.5x from FY 2014 onwards, more in line with the B2 rating assigned. As described above, we would expect gradual performance improvements on the back of benefits from implemented restructuring measures. These improvements are expected to be largely sustained with a financial policy focused on de-leveraging and with a cautious investment and M&A policy.

Moody's liquidity analysis concluded that KraussMaffei's liquidity needs for the next twelve months will be fully covered by EUR50 million available cash at closing (excluding EUR27 million restricted cash to secure letters of credit), funds from operations expected to exceed EUR45 million and EUR15 million availability under the EUR75 million revolving credit facility maturing after 5 years from closing. Moody's takes some comfort from the fact that the financial covenant under this multi-currency facility, a maximum senior secured net leverage ratio of 3.75x, is expected to be set with ample headroom. However, we note that around EUR60 million of the revolver is expected to be utilized in form of letters of credit upon closing, which will likely remain at this level going forward, if not to be increased with rising business volume. Moody's cautions that the availability under the revolver, combined with internal cash generation, seems to be relatively low compared with the over EUR1 billion group revenues and does not leave much cushion in case of a cyclical downturn.

Structural Considerations

In our loss given default assessment, we have assigned the first rank to the company's EUR75 million revolving credit facility, given the preferred access to collateral. Due to the weaker collateral position of the EUR325 million bond, Moody's views this instrument one level lower on second rank. Trade payables rank second together with the bond, which is considered to be the senior most significant financial debt. Finally, pension liabilities and future minimum lease payments (due within 1 year) rank in third place reflecting the unsecured status of these liabilities. Given the small amount of debt on rank 1 and a sizeable layer of debt on rank 2, Moody's has assigned a (P)B2 instrument rating to the bond issuance (LGD3, 44%), in line with the Corporate Family Rating.

The outlook on the ratings is stable. This mirrors Moody's expectation that KraussMaffei will largely withstand pressure from weakening European demand due to its global reach. This, together with cost cutting measures feeding through, should enable KraussMaffei to gradually improve operating profitability from 2014 onwards. The stable outlook also assumes that KraussMaffei preserves a solid liquidity cushion including sufficient headroom under financial covenants going forward, also supported by positive free cash flow generation. We expect any further increase in requirements on letters of credit to be covered by the company's cash generation.

Upside rating pressure could arise if Notes GmbH would be able to show a sustainable increase in profitability, as reflected in EBITA margins above 7.5%. In addition, a B1 Corporate Family Rating would require a reduction of leverage to below 4.5x debt / EBITDA, and interest cover to exceed 2.0x EBIT / Interest Expense, all on a sustainable basis.

Likewise, downward pressure would build if the company is not able to achieve operational improvement from restructuring measures as we expect, resulting in EBITA margin remaining below 5% after 2013, leverage deteriorating to above 6.0x debt / EBITDA, or EBIT / Interest Expense falling below 1.5x. Any deterioration of short-term liquidity would also add negative pressure.

The principal methodology used in rating KM Germany Holdings GmbH and KM US Holdings II, Inc was the Global Heavy Manufacturing Rating Methodology published in November 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Munich / Germany, KraussMaffei is the global leader for plastic system solutions. With a product range covering the full range of technologies including (i) injection molding, (ii) extrusion technology as well as (iii) reaction process technology the company has the broadest product offering in its industry. The company holds top 3 market position in all key plastic processing technologies. During the fiscal year ended September 30, 2012, KraussMaffei generated sales of EUR1,064 million with around 3,900 employees.

REGULATORY DISCLOSURES

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KraussMaffei AG has received an Indicative Assessment Service within the last two years preceding the credit rating action.

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Oliver Giani Vice President - Senior Analyst Corporate Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Matthias Hellstern Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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