April 28, 2011: FITCH DOWNGRADES PFLEIDERER AG TO ‘C’ ON RESTRUCTURING PROPOSAL

Fitch Ratings-Frankfurt/London-28 April 2011: Fitch Ratings has downgraded Pfleiderer AG’s (Pfleiderer) Long-term Issuer Default Rating (IDR) to ‘C’ from ‘CC’. The Short-term rating is affirmed at ‘C’. Pfleiderer’s subordinated hybrid bond, issued by the subsidiary Pfleiderer Finance B.V., is also affirmed at ‘C’ with a Recovery Rating of ‘RR6’.

The downgrade follows Pfleiderer’s announcement that it has sent a preliminary agreement for the group’s financial restructuring to its creditors. Approval and signing of this agreement is planned for mid-May 2011. If the agreement is approved as agreed, a further downgrade to ‘RD’ is likely.

Fitch downgraded Pfleiderer to ‘CC’ in December 2010, due to its concerns that the company’s free cash flow would remain negative in Q410 and Q111. Moreover, the agency expected that costs incurred as a result of business restructuring measures would further aggravate the company’s liquidity situation. Today’s announcement suggests that these concerns were founded and that Pfleiderer will need creditors to take substantial haircuts on their claims and that the company will also need a further EUR100m cash injection in capital increase and/or additional credit lines to be able to continue operating.

The downgrade reflects Fitch’s view that a default is imminent or inevitable and that the issuer has entered into a waiver agreement and that a coercive debt exchange is inevitable. The waiver agreement also includes interest payment and fees. Fitch believes that unless Pfleiderer receives substantial new liquidity, the company will face a liquidity crunch by mid-May 2011. The material reduction in terms can be seen as a credit impairment, including a reduction in the principal amount, a reduction in interest and fees and swapping of debt into equity.

A key element of the planned restructuring is that the creditors will waive their claim to 40% of financial liabilities (excluding the Eastern Europe financing group). The holders of the hybrid bond are expected to fully wave their rights in exchange for 4% of the company’s share capital.

In addition, the creditors are expected provide a new credit line of EUR100m in May 2011 in the form of a first-lien secured loan (super-senior). This will be followed by an equity write off, initially leaving the shareholders with 1% of the share capital, and a subsequent capital increase of EUR100m, EUR60m of which will be contributed by creditors and EUR40m by the shareholders.

As a result, current shareholders would hold 16% of the restructured share capital, the creditors 80% and the holders of the hybrid bonds, 4%. If the shareholders do not contribute to the full EUR40m, the creditors would provide a further super senior loan to make up the shortfall and ensure the planned EUR100m cash inflow takes place.