07.12.2012 21:19
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Phibro Animal Health Corporation -- Moody's changes Phibro's outlook to positive; affirms all ratings

Approximately $300 million of rated debt affected

New York, December 07, 2012 -- Moody's Investors Service changed the ratings outlook of Phibro Animal Health Corporation ("Phibro") to positive from stable as well as affirmed the company's corporate family and probability of default ratings at B3. Additionally, Moody's affirmed the Caa1 rating on the company's $300 million senior unsecured notes.

The change in the outlook to positive reflects improvement in the company's financial performance. We project Phibro's adjusted debt-to-EBITDA to hover around 5 times and adjusted EBITDA-CAPEX/interest expense to be around 1.5 times by the end of fiscal 2013. The affirmation of the B3 corporate family rating considers the near-term refinancing risk and uncertainty regarding Phibro's capital structure post refinancing or redemption of upcoming debt maturities.

The following rating actions were taken:

Corporate family rating, affirmed at B3;

Probability of default rating, affirmed at B3;

$300 million, 9.25% Senior Unsecured Notes, due 2018, affirmed at Caa1 and LGD rate changed to LGD4, 60% from LGD4, 59%.

Please see Phibro's credit opinion on www.moodys.com for more information.

RATING RATIONALE

The B3 corporate family rating considers Phibro's relatively small revenue base versus many of its competitors. Moreover, the company's aggressive financial policy with regards to dividends and acquisitions as well as upcoming debt maturities weigh on the rating. Additionally, the B3 corporate family rating reflects Moody's expectation of adjusted free cash flow-to-debt below 5% in the next twelve months. The B3 rating also considers Phibro's concentration in the highly competitive animal health and nutrition end-markets as well as its exposure to volatile trace mineral prices. The risks inherent in the sector the company operates in include overall competitive environment, regulatory restrictions on the use of MFAs, governmental restrictions on manufacturing and approval of new products, potential outbreaks of animal diseases, and raw material costs.

At the same time, the B3 rating considers Phibro's adjusted debt-to-EBITDA of around 5.3 times and adjusted EBITDA-CAPEX/interest expense at 1.4 times for the trailing twelve month (TTM) period ended September 30, 2012. The rating is also supported by our expectations for global protein consumption expansion, particularly in emerging countries. However, potential reduction in the number of production animals in the U.S. could pressure volumes and higher feed prices could affect pricing negatively. We note that Phibro derives about 65% of its net sales from U.S.

The positive outlook reflects improvement in the company's credit metrics and projected good liquidity profile.

The ratings could be downgraded if adjusted debt-to-EBITDA exceeds 7.5 times, liquidity weakens, and the company's free cash flow turns negative. Additionally, a material debt-financed acquisition or additional shareholder friendly activities could result in a ratings downgrade.

The company's ratings are constrained due to its relatively small size, upcoming debt maturities, and highly leveraged capital structure. However, if Phibro's is able to increase its adjusted free cash flow-to-debt above 5% on a sustained basis while maintaining adjusted debt leverage below 6 times and adjusted EBITDA-CAPEX/interest expense above 1.5 times, the ratings could be upgraded.

The principal methodology used in rating Phibro Animal Health Corporation was the Global Manufacturing Industry published in December 2010. Other methodologies used include 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.

Phibro Animal Health Corporation ("Phibro") is a diversified global developer, manufacturer and marketer of a broad range of animal health and nutrition products to the poultry, swine, cattle and aquaculture markets. Phibro is also a manufacturer and marketer of performance products for use in the ethanol, personal care, automotive, chemical catalyst and electronics markets. BFI Co. LLC owns a majority of Phibro's common shares. Revenues for the TTM period ended September 30, 2012 were approximately $657 million.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Tiina Siilaberg Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Alexandra S. Parker MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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