RATINGS RATIONALE

"The downgrade reflects the uncertainty of the outcome of Schoeller Arca's arbitration with iGPS, its former large customer, which has led the company's auditors to delay providing an opinion on the company's 2011 financial results," said Tanya Savkin, a Moody's Vice President -- Senior Analyst and lead analyst for Schoeller Arca. "The negative outlook reflects the potential unfavourable impact of the iGPS arbitration, combined with a challenging economic environment and weak liquidity, while recognizing the continued support of Schoeller Arca's shareholders and a successful outcome of the company's waiver and amendment request with its lenders".

The company's unaudited financial results for 2011 demonstrated a significant year-on-year drop in sales and EBITDA as a result of a loss of its main customer in the US, the weakened economic environment in Europe and the company's continued liquidity issues. This was partially offset by the increase in revenues from the company's European customers, which partially compensated the slowdown in sales seen in the first half of 2012. However, the manufacturing inefficiency and liquidity issues continued to have a negative impact on the company's earnings.

Positively, the company recently renegotiated its covenants in its bank facilities, which gave it greater headroom on financial covenants as well as an increase in the factoring basket and the related maximum permitted indebtedness basket. These concessions require a EUR25 million equity contribution from the sponsors as well as the integration of Linpac Allibert, a complementary packaging company currently owned by majority shareholder OEP, into Schoeller Arca's business. The combination of Schoeller Arca and Linpac is expected to bring significant synergies to the combined entity's market position and cost base.

The company's liquidity remains weak, although enhanced by the negotiated increase in the factoring basket and equity contribution from the sponsors. The company faces the scheduled repayment of EUR17 million debt in 2013.

The PDR and the ratings on Term Loans A1 and B1 and the RCF are in line with the CFR given their predominant role in the company's capital structure. Moody's understands that the EUR18.5 million original principal amount of Term Loan B2 was converted into preferred equity in December 2011, leaving the accrued interest to become the revised principal, which is repayable in 2014. This conversion constituted a default according to Moody's definition.

While Moody's believes that there is limited scope for a rating upgrade in the short to medium term, the rating upgrade could follow (i) a favourable outcome of the arbitration with its main customer; (ii) a stabilisation of Schoeller Arca's operating performance; and (iii) favourable visibility regarding the company's liquidity position. Further negative rating pressure could arise should further deterioration in operational performance result in an even weaker liquidity profile, or in case of an unfavourable outcome of the iGPS arbitration.

The principal methodology used in rating Schoeller Arca Systems Holding B.V. was the Global Packaging Manufacturers: Metal, Glass, and Plastic Containers Industry Methodology published in June 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.

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Tanya Savkin Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Chetan Modi MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom 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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