Milan, July 10, 2012 -- Moody's Investors Service has today downgraded Stena AB's corporate family rating (CFR) and probability of default rating (PDR) to Ba3 from Ba2. Concurrently, Moody's has downgraded Stena's senior unsecured rating by two notches to B2 (LDG6/93%) from Ba3 (LDG5/85%). The outlook on the ratings is negative.

RATINGS RATIONALE

"Today's rating action reflects our view that, over the medium term, the Stena group is unlikely to achieve a consolidated financial profile that would be commensurate with the guidance previously outlined for maintaining a Ba2 rating," says Marco Vetulli, a Moody's Vice President -- Senior Credit Officer and lead analyst for the company. "This view reflects the fact that the pace of Stena's deleveraging process is being impeded by the combined effect of higher-than-anticipated capital investment spending for the period 2008-12 and the lacklustre performance of some of the company's activities -- notably its ferry and tanker operations," explains Mr. Vetulli.

Moody's had previously indicated that it expected Stena to maintain its operating profile and improve its credit metrics on a sustainable basis, with EBIT interest coverage of above 2.0x and debt/EBITDA trending to 5.5x on a consolidated level.

Stena's Ba3 corporate family rating (CFR) reflects (1) the company's relatively high leverage -- on-balance-sheet and on a lease-adjusted basis -- with debt/EBITDA of 6.7x on a consolidated level as at end-March 2012; (2) its exposure to economic downturns and charter rate volatility; and (3) the risks involved in Stena's investment and trading activities, albeit outside of the Restricted Group and therefore limited to the Unrestricted Group.

However, the rating also recognises (1) Stena's diversified operations (ferry, shipping, off-shore drilling, real estate), including the company's leading positions in the markets in which it operates; (2) the company's strong brand name and share of the ferry market in Scandinavia, the UK and Germany; (3) its strong asset base; and (4) its backlog of contracted revenues derived from real estate, drilling and liquefied natural gas (LNG) activities. The rating also incorporates the resilience of the activities carried out in the Unrestricted Group, which lends some credit support to the Restricted Group.

WHAT COULD CHANGE THE RATING DOWN/UP

"Stena remains weakly positioned in its current rating category: should the company's metrics not improve during 2012 and in 2013, further downward pressure would arise, hence our decision to maintain a negative outlook on the rating," adds Mr. Vetulli.

In order to maintain the current rating, Moody's considers that by year-end 2012, Stena would need to exhibit the following credit metrics: (1) debt/EBITDA approaching 6.0x and EBIT interest coverage of more than 1.5x on a consolidated level; and (2) debt/EBITDA towards 5.5x and retained cash flow (RCF)/net debt approaching the low teens in percentage terms at the Restricted Group level.

Moreover, Moody's could make a further downward adjustment of Stena's CFR if the company were unable to strengthen its credit metrics profile by 2013. For instance, financial leverage exceeding 5.5x at the Restricted Group level could indicate management's unwillingness or inability to de-risk the company's capital structure. In addition, downward rating pressure could result not only from an increased appetite for risk in Stena's trading activities, but also from any significant deterioration in the company's liquidity profile.

Upward pressure on Stena's ratings -- albeit not expected in the medium term -- could develop following (1) a sustainable increase in internal cash flow generation, with consolidated RCF/net debt approaching the high teens in percentage terms; and (2) a progressive deleveraging of the company's balance sheet, with consolidated debt/EBITDA below 5.5x.

Moody's previously rated Stena's senior unsecured debt one notch higher than the outcome of the loss given default (LGD) assessment, in consideration of the company's strong asset base and its relatively secured loan-to-value (LTV) structure. However, given the downgrade of Stena's CFR to Ba3, the rating on the bonds is now in line with the outcome of the LGD assessment, in light of the increase in the probability of default. As a result, the gap between the CFR and the senior unsecured rating has widened to two notches.

The notes are generally unsecured obligations, which rank equally in right of payment with all the unsecured and unsubordinated debt of the group. Furthermore, given that Stena is a holding company, the noteholders are structurally subordinated to the subsidiaries' operating liabilities.

Based on the indenture governing the senior notes, the subsidiaries that conduct the real estate operations, and the two that primarily invest in securities, are designated as unrestricted subsidiaries. As a result, they will not be bound by the restrictive provision of the indenture. As the indenture contains no limitation as to the amount of debt an unrestricted subsidiary may incur, it requires that any indebtedness of unrestricted subsidiaries incurred after offering the notes must be non-recourse to Stena and its restricted subsidiaries.

Therefore, in Moody's LGD assessment, the secured debt included in unrestricted subsidiaries has been excluded from the waterfall used for restricted subsidiaries, taking into account that (1) no cross guarantees link unrestricted and restricted subsidiaries (in the event of default, neither group can claim any recourse on the asset of the other); and (2) no cross-default clauses link the debt of restricted and unrestricted subsidiaries related to real estate activities.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Stena was the Global Shipping Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Gothenburg, Sweden, Stena AB is one of the largest entities within the "Stena Sphere" of companies, fully controlled by the Olsson Family. Stena AB is a holding company engaged in various business divisions, including ferry operations, shipping, offshore drilling, real estate and other investment/trading activities. At the end of first quarter 2012, the company reported a last-12-months consolidated turnover of approximately SEK25 billion (USD3.8 billion) .

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Marco Vetulli VP - Senior Credit Officer Corporate Finance Group Moody's Italia S.r.l Corso di Porta Romana 68 Milan 20122 Italy Telephone:+39-02-9148-1100Eric de Bodard MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Italia S.r.l Corso di Porta Romana 68 Milan 20122 Italy Telephone:+39-02-9148-1100(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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