Greif (GEF) CFR Downgraded to 'Ba2' by Moody's

Moody's Investors Service ("Moody's") downgraded the Corporate Family Rating of Greif (NYSE: GEF) to Ba2 from Ba1. Additional instrument ratings are detailed below. Moody's also revised the ratings outlook to negative from stable.

Moody's took the following rating actions:

Greif , Inc.:

- Downgraded Corporate Family Rating to Ba2 from Ba1

- Downgraded Probability of Default Rating to Ba2-PD from Ba1-PD

- Downgraded $250 million 7.75% senior unsecured notes due August 2019 to Ba3, LGD5 from Ba2, LGD5

- Downgraded $300 million 6.75% senior unsecured notes due February 2017 to Ba3, LGD5 from Ba2, LGD5

- Affirmed Speculative Grade Liquidity Rating SGL-2

Greif Luxembourg Finance SCA:

- Downgraded EUR200 million 7.375% senior unsecured notes due July 2021 to Ba3, LGD5 from Ba2, LGD5

The ratings outlook is revised to negative from stable.

RATINGS RATIONALE

The downgrade primarily reflects the deterioration in free cash flow to debt over the last 12 months, the continued weak EBIT margin and the challenging operating and competitive environment. Greif has not met projected expectations and is not expected to improve metrics to a level commensurate with the Ba1 rating category over the horizon. While most of the company's credit metrics deteriorated over the last 12 months, free cash flow to debt and the EBIT margin are especially weak for the rating category. Leverage and interest coverage remain within the rating category. Free cash flow was largely depressed by Greif's failure to cut the dividend payment as operating results deteriorated. The company has been negatively impacted by economic weakness, operational inefficiencies and competition. Operating results were also negatively impacted by restructuring costs, divestitures and currencies. Greif was also negatively impacted by a reduction in shipping related to the decline in oil prices and various onetime items including the disruption of operations in the company's plant in Turkey. While some improvement in operating results is expected over the next 12 to 18 months as the company benefits from various completed and ongoing initiatives in its transformation plan, the improvement is not expected to be sufficient to maintain the Ba1 corporate family rating.

The ratings outlook is revised to negative. The negative rating outlook reflects an expectation that Greif will be challenged to improve its weak free cash flow to debt and EBIT margin to a level commensurate with the Ba2 rating category over the next 12 to 18 months. The company's ambitious transformation plan leaves little room for negative variance and the operating and competitive environment is expected to remain challenging over the horizon.

The rating could be downgraded if there is a deterioration in credit metrics or the operating and competitive environment or a large debt-financed acquisition. Specifically, the rating could be downgraded if free cash flow to debt fails to improve to over 7.5%, the EBIT margin fails to improve to over 11%, debt to EBITDA increases to over 4.25 times, and/or EBIT to interest remains below 3.5 times.

The rating could be upgraded if the company sustainably improves credit metrics with the context of a stable operating and competitive environment. Specifically, the rating could be upgraded if Greif improves free cash flow to debt to at least 9%, the EBIT margin improves to at least 13%, debt to EBITDA remains below 3.5 times, and/or EBIT to interest improves to at over 3.5 times. .

The principal methodology used in these ratings was Global Packaging Manufacturers: Metal, Glass, and Plastic Containers published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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