Schaeffler AG's Recovery Rating Profile - Standard & Poor's

Security and guarantee package
The €2 billion equivalent senior secured notes and the €6 billion equivalent senior credit facilities (the latter is made
up of the initially €8 billion new senior credit facilities, minus the €2 billion facility A, not utilized and cancelled as a
result of the simultaneous raising of the proceeds of the €2 billion equivalent notes) benefit from a similar security
package. This security includes:
• A pledge over the shares of each subsidiary guarantor, and of each direct or indirect shareholder of the subsidiary
guarantors that is a subsidiary of Schaeffler AG and certain other key subsidiaries of Schaeffler AG;
• A pledge over the shares in the notes' issuer, Schaeffler Finance B.V.;
• A pledge over the shares in Continental AG (B+/Positive/B), indirectly owned by Schaeffler AG (accounting for
36.1% of the total Continental shares);
• Security over certain intra-group loan hedging receivables ; and
• Security over certain accounts receivables and cash-pool accounts, which are limited in value, in our view.
We understand that the subsidiary guarantors of the senior credit facility represent at least 75% of the consolidated
gross assets of the restricted group (comprising Schaeffler AG and its subsidiaries), at least 70% of its
unconsolidated EBITDA, and at least 70% of its consolidated turnover. We also understand that the guarantors of
the senior secured notes initially represent at least 70% of the restricted group's consolidated EBITDA, at least 75%
of its consolidated assets, and at least 70% of its consolidated turnover.
The notes' documentation states that the subsidiary guarantees and the security on the Continental shares can be
released, under certain circumstances, without the agreement of the senior secured noteholders. This would be the
case, if, for example, the senior credit facilities were repaid in full, which is to be expected given their earlier
maturity date of 2015-2017. The full repayment of the senior credit facilities means that security will be released,
but at the same time leverage will decline. Crucially, we also understand that the senior secured notes will benefit, in
any possible scenario, from an unconditional and irrevocable guarantee from Schaeffler AG until their final
maturity.
Furthermore, according to the documentation for the senior credit facility, the proceeds from a non-distressed sale of
the Continental shares that are pledged as security for the senior credit facilities and the notes must be used to
prepay the senior credit facilities. In addition, under certain prerequisites (in particular, a significant reduction of
total senior debt at the lower deck), the proceeds can be used to prepay the junior facilities.
Documentation/covenants
The notes' documentation's debt incurrence test, consisting of a consolidated coverage ratio of 2.0x, is fairly loose.
In view of the fact that this ratio is about 4.0x based on the parent's pro forma total debt, debt could theoretically
increase by circa €7.0 billion, at current EBITDA levels, before it reached the 2.0x limit. Further debt can be raised
via permitted baskets without complying with this ratio, including:
• Indebtedness under the credit facilities not exceeding €8,250 million (that is, approximately €250 million above
the committed senior credit facility debt) less the net notes proceeds and permanent repayments with asset sales
proceeds under the facility's terms;
• Capital lease obligations not exceeding the greater of €300 million and 2.5% of total assets;
• A qualified securitization financing of up to €300 million; and
• Debt by the parent guarantor or restricted subsidiaries not exceeding €500 million.
Recovery Report: Schaeffler AG's Recovery Rating Profile
Standard & Poors | RatingsDirect on the Global Credit Portal | April 17, 2012 6
958466 | 300374394