Sappi Papier Holding GmbH -- Moody's assigns (P)Ba2 rating to Sappi's new bond issuance

Frankfurt am Main, June 20, 2012 -- Moody's Investors Service today assigned a provisional (P)Ba2 rating to the USD300 million senior secured notes to be issued by Sappi Papier Holding GmbH, the holding company for Sappi Limited's (Sappi) international operations outside of South Africa. The notes will mature in 2017 and net proceeds from the issuance together with cash on hand will be used to refinance USD300 million equivalent in aggregate principal amount of senior secured notes due 2014, for which Sappi has today launched a tender offer. Moody's issues provisional ratings in advance of the final sale of securities and these reflect the rating agency's credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavor to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

The (P)Ba2 (LGD 3, 36%) rating assigned to the senior secured notes is one notch above the company's Ba3 Corporate Family Rating (CFR) and reflects the relative seniority and security package of the new instruments in Sappi's capital structure. The proposed notes benefit from the same guarantee and security package as Sappi's existing senior secured debt, including the USD300 million and EUR350 million notes due 2014 issued by finance vehicle PE Paper Escrow, which will be partially repaid, the USD350 million notes maturing in 2021, the EUR250 million notes maturing in 2018, the EUR350 million revolving credit facility maturing in 2016 as well as certain other indebtedness.

These aforementioned instruments benefit from upstream guarantees on a senior basis of essentially all material operating subsidiaries of Sappi's international business, excluding South African operations. In addition, these instruments are partially secured as they benefit from a first-lien security interest in certain of Sappi's subsidiaries' property, plant and equipment, real estate and inventories, as well as share pledges on the stock of certain of Sappi's operating subsidiaries. Furthermore, the notes will benefit from a senior downstream guarantee provided by the ultimate holding company Sappi Ltd.

The affirmation of the group's Ba3 CFR with a positive outlook reflects Sappi's improving trend of operating profitability margins in the fiscal year 2012 (ending September) so far, despite the weak macroeconomic environment. While paper volumes will in Moody's view continue to decline over the coming months, improvement of the cost competitiveness in particular of the group's European operations, announced price increases as well as continued strong contribution from its chemical cellulose activities should supported a continued recovery in EBITDA margins. Moody's also notes positively that following the refinancing, lower financing charges will contribute positively to cash flow generation and should enable Sappi to achieve interest coverage metrics more appropriate for a rating in the Ba category.

Key risk factor at this point in time is the low visibility with regards to the development of paper demand. In particular in Europe, negative effects from the sovereign crisis spilling over into the real economy could result in severe volume pressure in excess of our current expectation and could result in increasing pressure on Sappi's profitability. This could make it challenging for the group to improve and sustain credit metrics required for a higher rating.

The positive outlook mirrors Sappi's solid positioning in the current rating category and our expectation that the rating could be upgraded over the next few quarters should Sappi be able to sustain recent improvements in operating profitability despite weak industry fundamentals.

Upward rating pressure could emerge if Sappi is able to sustain recent improvements in credit metrics over the coming quarters as reflected in RCF / debt above 15% (17.1% per LTM 03/2012) and EBITDA margins above 12% (11% per LTM 03/2012) as well as continued though modest positive free cash flow generation. The announced partial refinancing of the 2014 bonds should help to improve Sappi's EBIT/Interest coverage towards 2x, which would also put positive pressure on the rating.

The ratings could experience downward pressure over the coming quarters in the event of: (i) a weakening liquidity profile driven by negative free cash flows, or a tightening financial covenant headroom, or evidence of a failure to renegotiate debt maturities on a timely basis, or (ii) inability to sustain current credit metrics, reflected in EBITDA margins dropping to the single digit percentages, RCF/Debt falling towards the single digits, or EBITDA-Capex to interest expense below 1.0x, or (iii) sizable debt funded acquisitions or significantly increased dividend payouts.

Assignments:

..Issuer: Sappi Papier Holding GmbH

....Senior Secured Regular Bond/Debenture, Assigned a range of 36 - LGD3 to (P)Ba2

The methodologies used in these ratings were Global Paper and Forest Products Industry published in September 2009, and 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.

Domiciled in Johannesburg, South Africa, and with group sales of USD6.8 billion in the last twelve months ending March 2012, Sappi Ltd ("Sappi" or "the company"), rated Ba3 with a positive outlook, is among the leading global producers of coated fine paper and chemical cellulose. The company operates through two divisions: Fine Paper and Sappi Southern Africa.

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Anke RindermannAsst Vice President - 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 Associate 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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