S&PCorrect: S&P Rates IFCO Systems' Euro Sub Nts 'B'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 22, 2000

(Editor's Note: In the press release published on Feb. 18, 2000, the borrower of the credit facility was incorrectly referred to as IFCO Systems. The correct borrower is PalEx Inc. The corrected press release is below.)

Standard & Poor's today assigned its single-'B' rating to IFCO Systems N.V.'s $180 million Euro senior subordinated notes due 2010, to be issued under Rule 144A with registration rights.

At the same time, Standard & Poor's assigned its double-'B'-minus rating to PalEx Inc.'s $300 million credit facility due 2006, which includes a $175 million six-year revolving credit facility and a $125 million six-year acquisition facility. After its intended merger, PalEx will become a wholly owned subsidiary of IFCO. The credit facility will be guaranteed by IFCO Systems.

Standard & Poor's also assigned its double-'B'-minus corporate credit rating to the company.

The outlook is positive.

Proceeds from the debt issuance, in conjunction with an IPO that is expected to raise about $179 million, will be used to repay existing debt and to purchase PalEx Inc. for approximately $326 million.

The ratings reflect the company's solid market positions in niche markets, an aggressive financial profile, and a growth plan that will likely require additional borrowings. Ratings also reflect the expectation that the pending merger with PalEx Inc. will be completed as planned.

IFCO is the leading European player in round-trip containers (RTCs), a rapidly growing industry. Round-trip systems provide the infrastructure and logistics for a specific container to be used to flow products through an entire distribution cycle and then be reconditioned and reused multiple times rather then being discarded. RTCs provide retailers, manufacturers, and producers with several advantages, including reduced disposal costs, improved material-handling costs, and better display capabilities. In addition, on completion of the merger with PalEx, IFCO will be the largest provider of new and recycled wood pallets in North America. Pallets are used in virtually all U.S. industries where products are physically distributed.

The company's business units should continue to benefit from the growth in RTC use throughout Europe and North America, as well as from the modest growth in wood pallets. The merger of PalEx into IFCO should accelerate the introduction of IFCO's innovative RTC system in the U.S. through use of PalEx's existing distribution channels. RTC use in North America is currently in its infancy, but is expected to grow fairly rapidly over the next several years. The company will be challenged to successfully execute its business plan, which calls for rapid internal growth supplemented with acquisitions. In addition, the ability to manage the logistics in connection with seasonal demand for RTCs and pallets is an additional risk factor.

Pro forma for the merger, total debt to earnings, before interest, taxes, depreciation, and amortization (EBITDA) will be about 3 times (x), and EBITDA interest coverage should be about 3.6x. Debt usage is expected to remain high, reflecting the company's aggressive growth plan, which will require heavy capital spending, a good portion of which is discretionary. Internal growth is expected to be supplemented with a fair amount of acquisitions. Going forward, total debt to EBITDA and EBITDA interest coverage should be about 3.5x, and funds from operations to total debt is expected to be in the 15%-20% range.

The credit facility is rated the same as IFCO's corporate credit rating, reflecting the facility's senior secured status. The company's cash flows were significantly discounted to simulate a default scenario and capitalized at an EBITDA multiple reflective of the market. However, based on Standard & Poor's simulated default scenario, it is not clear that a distressed enterprise value would be sufficient to cover the entire loan facility.

OUTLOOK: POSITIVE

Ratings could be raised in the intermediate term if IFCO can successfully execute its growth plan while, at the same time, strengthening credit measures beyond expected levels, Standard & Poor's said.---CreditWire