CORPORATES

CREDIT OPINION22 November 2019

Update

RATINGS

Kleopatra Holdings 2 S.C.ADomicile Luxembourg

Long Term Rating B3

Type LT Corporate FamilyRatings

Outlook Negative

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Tobias Wagner +44.20.7772.5308VP-Senior Analysttobias.wagner@moodys.com

Peter Firth +44.20.7772.5222Associate Managing Directorpeter.firth@moodys.com

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

Kleopatra Holdings 2 S.C.AUpdate to credit analysis

SummaryThe B3 corporate family rating (CFR) of Kleopatra Holdings 2 S.C.A. (Klöckner Pentaplastor KP) reflects the company's high Moody's-adjusted debt/EBITDA of 8.5x as of June 2019,adjusted for exceptional items. Klöckner Pentaplast also continues to report negativefree cash flow on a year-to-date basis after capital spending and interest. At the holdingcompany, which is above the rated group and not considered in our metrics, sits also a PIKnote, further contributing to an aggressive financial policy. To maintain the rating at thecurrent level, we require Klöckner Pentaplast to return to a visible deleveraging trajectorythrough EBITDA growth and its free cash flow to turn positive over the coming quarters.

In addition, the rating reflects (1) the challenge in passing on raw material price volatility tocustomers, in which the company has a mixed track record; (2) the challenge in generallyimproving profitability through cost actions, efficiency improvements and targetedinvestments; and (3) the competitive market environment and some challenges stemmingfrom the consumer- and regulation-driven efforts to improve the sustainability of plasticpackaging and possibly transition away from plastic wherever possible, particularly in Europe.This could pose further challenges in the future.

However, the rating also reflects the company's (1) position as a large and diversified plasticpackaging provider in both primary and secondary packaging with a focus on films and, toa lesser extent, trays (from the Linpac acquisition); (2) different end-markets, including lesscyclical end-markets such as food or pharma applications; and (3) balanced geographicalprofile, although with some focus on Europe. The company also has limited customerconcentration and currently adequate liquidity with limited short-term debt maturities.

The company-adjusted EBITDA for the first half of 2019 remained broadly flat (around +3%on a reported basis, including some positive effects from the IFRS 16 implementation).Positively, the performance in the company's Food & Consumer Products segment (FCP)delivered substantial company-adjusted EBITDA growth (+27%), although this was balancedby lower volumes in Specialties and higher costs in Pharma & Medical Device (PMD). From arating perspective, we will particularly focus on the delivery of the company's guided EBITDAimprovement in H2 2019 and the outlook into 2020.

MOODY'S INVESTORS SERVICE CORPORATES

Exhibit 1

Free cash flow and leverage remain weak, but could improve in the coming few quarters

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

2014 2015 2016 2017 2018 LTM June 2019 2019e 2020e

Moody's Adjusted Debt/EBITDA Forecast Range Moody's-adjusted FCF/Debt - right axis Forcast Range

Forecast represents Moody's estimated range.Sources: Company reporting and Moody's Investors Service

Credit strengths

» Large and diversified business

» Focus on less cyclical food and pharma end-markets

» Adequate liquidity and debt-maturity profile

Credit challenges

» High leverage and weak cash flow

» Need for improvements in profitability and cash flow

» Various challenging trends in the main segment, such as raw material price volatility, need for efficiency improvements and shifttowards greater sustainability in a competitive environment

Rating outlookThe negative outlook reflects the company's ongoing challenge of generating visible EBITDA growth and the uncertainties regardingthe magnitude and pace of deleveraging in H2 2019 and into 2020. Significant EBITDA growth and free cash flow improvement in thecoming few quarters are required to maintain the current rating and achieve an outlook stabilisation.

Factors that could lead to an upgradeAlthough currently unlikely, given the negative outlook, the rating could be upgraded if the company manages to reduce its Moody's-adjusted debt/EBITDA to sustainably below 6.5x (including factoring), combined with Moody's-adjusted free cash flow/debt in the mid-single digits in percentage terms.

Factors that could lead to a downgradeTo maintain the rating at the current level, we require the company to demonstrate meaningful EBITDA growth and free cash flowimprovement in 2019 and into 2020. An inability to do so or otherwise weakening liquidity, including through approaching largermaturities, could result in a downgrade.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 22 November 2019 Kleopatra Holdings 2 S.C.A: Update to credit analysis

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Key indicators

Exhibit 2

Kleopatra Holdings 2 S.C.A. 2018 LTM June 2019 2019e 2020e

Consolidated Revenue (EUR

Billions)

€1.9 €1.9 €1.9 €2.0

EBITDA Margin 11.7% 11.4% 11-13% 11.5-13.5%

Debt / EBITDA 8.4x 8.5x 7.5-8.3x 6.8-8.1x

FFO / Debt 4.0% 2.2% 2.5-4.5% 4.0-7.0%

FCF/Debt 4.1% 2.0% -1.0-2.0% -1.0-3.0%

All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.Forecast represents Moody's range.Source: Moody's Investors Service

ProfileKleopatra Holdings 2 S.C.A. (Klöckner Pentaplast or KP), headquartered in Germany, is a plastic packaging manufacturing firm thatspecialises in the manufacture of rigid plastic films for use across a wide range of industries including pharmaceutical, medical devices,food and consumer products, as well as trays for food end-markets. Total annual revenue reached €1.9 billion in 2018. Strategic ValuePartners is the majority shareholder of the group following a financial restructuring and subsequent recapitalisation in June 2012.

Detailed credit considerationsScale and diversification support ratingKlöckner Pentaplast's credit profile is supported by its scale in an otherwise very fragmented plastic packaging market. Its historicalfocus on rigid plastic films across regions, although with some focus on Europe, and across end-markets, often with limitedcyclicality, provides for diversification. The around €570 million revenue addition of Linpac in 2017 further expanded the business intocomplementary secondary packaging such as thermo-formed rigid plastic trays, mostly for food applications, and in Europe.

While the company splits its business into three main categories, the Specialties division includes a range of products includingshrink sleeve labels, core and overlay film for card applications, decorative flooring, and specialty films for graphic and industrialapplications. The company operates 32 production sites across a number of countries in Europe as well as in the US (East Coast) andsome production footprint in Asia and South America.

While Klöckner Pentaplast is a large-scale company for polyethylene terephthalate (PET) and polyvinyl chloride (PVC) films in Europeand the US, we generally consider the plastic packaging market fragmented and competitive, particularly for plastic packaging productsthat provide limited value-added features. Pricing pressure is expected and needs to be offset with innovation, cost focus, efficiencyimprovements and volume growth. Key competitors of Klöckner Pentaplast would include Octal, Trident TPI Holdings, Inc. (B3negative, Tekni-Plex), Bilcare and Alfatherm for films, as well as Berry Global Group Inc. (Ba3 stable), Faerch Midco ApS (B3 stable),Amcor Limited (Baa2 stable) and Sealed Air Corp. (Ba2 stable) for trays.

3 22 November 2019 Kleopatra Holdings 2 S.C.A: Update to credit analysis

MOODY'S INVESTORS SERVICE CORPORATES

Exhibit 3

Balanced geographical profile, although with some focus on Europe2018 annual revenue by region

Exhibit 4

Food and consumer end-markets generate most of the revenue2018 annual revenue by end-market

Europe60%

North America26%

South America5%

Asia Pacific6%

Rest of World3%

Source: Company annual report 2018

Food & Consumer Products57%

Specialties24%

Pharma & Medical Device19%

Other0%

Source: Company annual report 2018

Customer concentration can also be an issue in the plastic packaging industry, given that the ultimate customers often tend to be largeconsumer goods companies, for example, in the food/beverage and personal care markets. In this context, Klöckner Pentaplast hadno customer accounting for more than 5% of revenue, and we view the company's customer concentration as below average in thecontext of its peers that we rate.

Raw material price pass-through to customers, alongside managing a number of other challenges, key to maintaining andimproving profitabilityKlöckner Pentaplast mainly uses PVC and PET resins as inputs, alongside, to a lesser extent, other plastics such as polypropylene andpolystyrene (PS). All these materials tend to be associated to varying degrees with oil prices and can vary significantly. For example,PVC price rises in 2017 hurt profitability and so did rising recycled PET prices in 2018. In 2019 so far, prices have largely stabilised oreased providing for a more favourable raw material price environment, although this could change again in the future. The companyhas around 30% of its annual volumes under contracts with raw material price pass-through clauses (escalator clauses), which mainlyreflects its contracted business (one to three years versus spot market). This percentage differs among FCP (25%), PMD (40%) andSpecialties (25%). We consider this at the lower end of range in the context of its peers that we rate, and would note that even in thecases where pass-through arrangements exist there often tends to be some short-term impact on profitability from lag effects as iscustomary in the industry.

There also continues a gradual shift away from PVC and PS towards PET, mainly in the North American market and in the FCP segmentwhere there is a substantial use of PVC for food and beverage applications. PET is preferred from a sustainability perspective with higherrecycling rates and better existing recycling infrastructure in many regions. This trend leads to some headwinds because there is arisk of losing some volumes or in the worst case customers, as they switch and review their sourcing strategy. In case customers andvolumes are maintained, there may also be requirements to restructure some of the production footprint and capacity with potentialcost or capital spending implications. In addition, the PET market tends to have lower margins and is more competitive.

Alongside the strengthening of its pricing functionalities, management is executing further opportunities for cost savings and efficiencyimprovements, which could drive potentially significant profitability improvements.

Increasing consumer- and regulation-driven focus on plastic packaging sustainability poses a number of risksThere is a consumer- and regulation-driven trend towards reducing the negative environmental effects of plastic waste and plasticpackaging. In particular, food and beverage plastic packaging is a major component of unrecycled plastic waste. There are currentlynumerous proposals being contemplated by the EU and UK that directly affect plastic packaging manufacturers in the region, rangingfrom bans on certain products, extended producer responsibility schemes, improved labelling and better environmental design, greateruse of recycled content, consumption reduction targets to a potential tax on plastic packaging that does not meet certain recycledcontent thresholds (that is, in the UK). They also range from targeting mostly the containers for ready-to-consume food and beverages

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MOODY'S INVESTORS SERVICE CORPORATES

to broader measures covering all plastic packaging. At this stage, it is unclear what measures will ultimately be implemented, but theyhave the potential to significantly change the industry. Plastic packaging manufacturers' customers such as retailers and consumergoods companies are also reacting to these consumer trends, seeking to make the packaging for their products more sustainable.

In our view and depending on what will ultimately be implemented and over what time horizon, also considering customers' reaction,this trend could lead to lower volume growth and pressure on profitability for plastic packaging manufacturers. More details on ourview can be found in the links to the respective reports above. KP, in this context, generates about 8% of revenue in the UK, and mostof the revenue in Europe and has already been affected by the rising rPET prices in 2018 and the trend towards PET, which are directconsequences of environmental concerns. The overall trend towards greater sustainability could lead to further headwinds in the future.

High leverage and weak cash flow profile weigh on ratingSince SVP acquired Klöckner Pentaplast in 2012, the company has issued additional debt to fund shareholder distributions. In April2015, the company made a repayment of subordinated loans to shareholders of around €300 million. This was the second distributionfollowing a €225 million PIK issuance in May 2013. A further, smaller shareholder distribution to SVP was included in the transaction toacquire Linpac in 2017. Moody's-adjusted debt/EBITDA was 8.5x as of June 2019 and includes factoring but is adjusted, similar to thecompany's EBITDA, for most exceptional items. The debt excludes the PIK note at the holding company above the rated (and restricted)group.

Given the company's low profitability and significant interest burden, free cash flow after capital spending and interest has remainednegative so far in H1 2019, slightly higher than in H1 2018, but still well below the outflow in 2017. Overall, 2019 cash flowimprovements should be supported by improved working capital management and reduced capital spending, but will also ultimatelydepend on profitability developments.

Considering the company's liquidity position, we also currently view it as less likely that the company will use its funds to support cashpayments to the PIK-toggle notes. SVP contributed €29 million of cash in Q1 2018 to support a buildup of inventory to better servecustomer needs, which is positive and supportive of our view on its liquidity. However, we do not expect further contributions.

Liquidity analysisWe view Klöckner Pentaplast’s liquidity as adequate. As of June 2019, liquidity remained supported by €53 million of (unrestricted)cash on the balance sheet as well as access to the committed €150 million revolving credit facility (RCF) due December 2021 of which€48 million was drawn. However, the company uses substantial amounts of factoring (€211 million as of June 2019), most of whichare scheduled to expire at year-end 2019, and local facilities (€82 million as of June 2019 of which €19 million are due within the next12 months) aside from the term loan debt that matures in June 2022. There is a one financial maintenance covenant, which is onlytested if the RCF is drawn by more than 40%, and the company has currently sufficient headroom under this covenant (if it were to betested).

Structural considerationsThe B3 CFR is assigned to Kleopatra Holdings 2 S.C.A., which is the top entity within the restricted group of the rated debt and remainsthe reporting entity for the group. The probability of default rating is at the same level as the CFR, B3-PD, reflecting our assumption ofa 50% recovery rate.

The B3 instrument ratings for the around €1.4 billion of bank loans borrowed at Klöckner Pentaplast of America, Inc reflect the fact thatthey represent, together with the RCF, most of the capital structure. The company also undertakes meaningful factoring and has someadditional local bank borrowings (see liquidity section).

Methodology and scorecardThe principal methodology used in this rating was the Packaging Manufacturers: Metal, Glass, and Plastic Containers ratingmethodology, published in May 2018. The difference between the scorecard-indicated outcome and actual rating assigned reflectsfactors not fully considered in the scorecard such as the challenge to improve profitability and the weak free cash flow.

5 22 November 2019 Kleopatra Holdings 2 S.C.A: Update to credit analysis

MOODY'S INVESTORS SERVICE CORPORATES

Exhibit 5

Rating factorsKleopatra Holdings 2 S.C.A

Global Packaging Manufacturers Methodology

Factor 1: Scale (20%) Measure Score Measure Score

a) Consolidated Revenue (USD Billions) $2.1 Ba $2.2 Ba

Factor 2: Business Profile (30%)

b)Product Strengths and Differentiation B B B B

c) Competitive Position / Switching Costs Ba Ba Ba Ba

Factor 3: Financial Policy (15%)

d) Financial Policy Caa Caa Caa Caa

Factor 5: Leverage and Coverage (35%)

e) FFO/Debt 2.2% Caa 4.0 - 7.0% Caa

f) Debt/ EBITDA 8.5x Ca 8.1x - 6.8x Caa

g) EBITDA / Interest Expense 1.9x B 2.2 - 2.6x B

Rating:

a) Indicated Outcome from Scorecard B2 B2

b) Actual Rating Assigned B3

Moody's 2020 Forward

View [2]LTM June 2019 [1]

[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.[2] This represents Moody's forward view, not the view of the issuer, and unless noted in the text, does not incorporate significant acquisitions and divestitures.Source: Moody's Investors Service

Ratings

Exhibit 6

Category Moody's RatingKLEOPATRA HOLDINGS 2 S.C.A

Outlook NegativeCorporate Family Rating B3

Source: Moody's Investors Service

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REPORT NUMBER 1203167

7 22 November 2019 Kleopatra Holdings 2 S.C.A: Update to credit analysis

MOODY'S INVESTORS SERVICE CORPORATES

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

8 22 November 2019 Kleopatra Holdings 2 S.C.A: Update to credit analysis