COLOUROZ INVESTMENT 1 GMBH -- Moody's affirms ColourOz MidCo (Flint) Caa1 CFR, upgrades PDR to Caa1-PD/LD; negative outlook

Rating Action: Moody's affirms ColourOz MidCo (Flint) Caa1 CFR, upgrades PDR to Caa1-PD/LD; negative outlook

Global Credit Research - 12 Aug 2020

Frankfurt am Main, August 12, 2020 -- Moody's Investors Service, ("Moody's") has today affirmed the Caa1 corporate family rating (CFR) and upgraded to Caa1-PD/LD from Caa3-PD the probability of default rating (PDR) of ColourOz MidCo's (Flint). At the same time Moody's appended the PDR with the "/LD" (limited default) designation.Concurrently Moody's has assigned Caa1 ratings to COLOUROZ INVESTMENT 1 GMBH & FDS Holdings BV senior secured first lien term loan credit facilities and to the COLOUROZ INVESTMENT 1 GMBH revolving credit facility (RCF), and assigned Caa3 ratings to COLOUROZ INVESTMENT 1 GMBH senior secured second lien term loan credit facilities. The outlook on all ratings remains negative.

RATING RATIONALE

The affirmation of the Caa1 CFR and the upgrade of the PDR by two notches to Caa1-PD/LD reflect the successful conclusion of Flint's amend and extend proposal initially put forward to lenders in April 2020. This resolves the near-term refinancing risk associated with debt instruments in the capital structure that would otherwise have matured in 2021 and 2022 respectively. The original maturities of the RCF and first lien facilities in 2021 and second lien facilities in 2022, have been extended to 2023 and 2024 respectively. This extends the next meaningful debt maturity by two years to 2023. The amend and extend transaction has come into effective 7 August 2020 and is in Moody's view moderately credit positive, as the transaction alleviates concerns about the company's liquidity profile. It provides the company with additional financial flexibility at a time when the company is in the middle of restructuring its packaging business and managing through the structural decline of its CPS business. Under Moody's definition this constitutes a distressed debt exchange and a default event. Moody's will remove the "/LD" designation from the PDR after three days. This transaction does not constitute an event of default under any of the company's debt agreements.

The affirmation of the Caa1 CFR takes into account the highly levered capital structure. Flint's Moody's adjusted gross leverage of 11.1x (9.8x adjusted for the packaging restructuring) in the LTM period ending March 2020 remains high and in our view continues to create a major challenge for the refinancing of the capital structure after the extended maturity dates . To retain the Caa1 rating a material improvement in performance transformed into positive free cash flow generation would be necessary in the next 12-18 months, in absence of additional measures to improve the company's capitalization.

Flint's Moody's-adjusted gross leverage peaked at 11.6x in 2019 due to weak performance of its packaging segment, the continued structural decline in CPS, high restructuring cost in its packaging segment in addition to its regular restructuring related to its CPS segment. In total restructuring charges in both segments resulted in P&L charges of E62 million during 2019. We expect a gradual deleveraging supported by lower restructuring charges and the benefits from restructuring measures. Performance in Q1 2020 was well above that of prior year due to cost savings initiatives implemented in late 2019. Q1 2020 results have also benefitted from increasing demand for food & pharma packaging and the company indicated that it expects strong demand to continue through Q2 2020, which also should support a moderate deleveraging in 2020 and 2021 towards 10.0x on a Moody's-adjusted basis. The company reports its Q2 results in mid-August. This is somewhat offset by generating free cash flows in 2021 onwards which supports the build-up of cash.

LIQUIDITY

Flint's liquidity profile will be adequate after the exchange. As at 31 March 2020 the company had around E124 million of cash on balance sheet and around E94 million of availability under its E103 million RCF and a $55 million ABL facility provided by its shareholders. These liquidity source in combination with projected FFO generation should be sufficient to cover forecasted capital expenditure, scheduled debt amortizations and swings in working capital over the next 12-18 months. The company's RCF is subject to financial covenants, which we expect to be met all times during the next 12-18 months.

STRUCTURAL CONSIDERATIONS

The rating on the first lien debt (including the RCF, which ranks pari passu) is Caa1, in line with the CFR, while the second lien debt is rated Caa3, two notches below the CFR reflecting the ranking in the waterfall analysis.

RATING OUTLOOK

The negative outlook on Flint's rating reflects Moody's expectation of adjusted leverage remaining above 10x in 2020, with limited free cash-flow to deleverage by the time the debt will be due. Furthermore the negative outlook reflects the risk that absent a performance improvement in the next 12-18 months refinancing risks will exacerbate again.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure on the rating could materialize, if there are visible near term improvements in performance resulting in Moody's adjusted leverage decreasing towards 7.0x, resulting in a high likelihood that Flint will be able to refinance its capital structure without any further losses for creditors. Furthermore, an upgrade of Flint's ratings would require Flint maintaining an adequate liquidity profile, including comfortable head room under its covenants, at all times.

Moody's could downgrade Flint's rating, if liquidity weakens due to negative FCF or decreasing covenant headroom under its RCF. Flint's rating also could be downgraded if there are no operating performance improvements that result in a more sustainable capital structure.

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

PROFILE

Headquartered in Luxembourg, ColourOz MidCo (Flint) is one of the largest global producers and integrated suppliers of inks and other print consumables, with a wide range of support services for the printing industry, along with well-established positions in most of its key markets. In 2019, the company reported revenue of around E2.0 billion, split 51% between EMEA, 39% the Americas and 10% in the AsiaPacific region. Flint serves the printing industry through two segments: packaging and CPS. Since September 2014, Flint has been owned 50% each by Goldman Sachs Merchant Banking Division and Koch Equity Development LLC, after a secondary leveraged buyout (LBO) from CVC Capital Partners (CVC). The company traces its origins to the acquisition and merger of Akzo Nobel Inks and BASF Printing Systems in 2004 by CVC, forming Xsys Print Solutions. Flint was created when Xsys merged with US-based Flint Ink Corporation. Since 2014, the company has grown its packaging business through various add-on acquisitions.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Moritz Melsbach Asst Vice President - Analyst Corporate Finance Group Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Matthias Hellstern MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​​​​​