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Frankfurt am Main, June 22, 2015 -- Moody's Investors Service, ("Moody's") has today upgraded the Corporate Family Rating ("CFR") to Ba2 from B1 and the Probability of Default Rating (PDR) to Ba2-PD from B1-PD of Metsa Board Corporation ("Metsa Board"). Concurrently, Moody's upgraded Metsa Board's 5-year non-call EUR225 million senior unsecured Nordic bond to Ba2 (LGD4) from B1 (LGD4). The outlook is stable.

"We have upgraded Metsa Board's ratings to recognize the company's ongoing success in offsetting the accelerated decline in paper delivery volumes by increasing paperboard volumes, in particular through exports to North America," says Matthias Volkmer, a Moody's Vice President - Senior Analyst and lead analyst for Metsa Board. "We expect the company to further improve credit metrics following the announced investments in production capacities. While transformation costs and in particular the Husum investment projects will marginalize free cash flow in the coming years, the recent rights issue to help fund these projects once more underlines the commitment of the company and its majority shareholder Metsäliitto Cooperative to adhere to a balanced financial policy. "

RATINGS RATIONALE

Metsa Board's upgrade to Ba2 CFR is driven by continued profitability improvements following the company's ongoing transformation into higher-margin packaging products, and significantly lower pension adjustments related to the recent sale of Metsä Board Zanders GmbH, which contained the loss-making business operations of its Gohrsmühle paper mill in Germany, hence, the strong improvement in its adjusted leverage ratio. The Ba2 rating also reflects (i) Metsa Board's strong market position, being among the leading producers of paperboard in Europe, (ii) its good vertical integration into pulp including its valuable shareholding in pulp company Metsa Fibre, reducing dependency on the volatile pulp prices, and (iii) positive industry fundamentals with structural growth for paperboard, which will be the major profit contributor for the group going forward. At the same time, we note that Metsa Board needs to successfully implement the Husum investment projects as well as grow and diversify its paperboard business globally.

We continue to caution that profitability of Metsa Board's residual paper (expected to be completely phased out by end of 2017) may be strained as overcapacity for paper continues to be significant, resulting in weak pricing power of producers, and therefore diluting the group's overall margin. In addition, new -- mainly hardwood - pulp capacities scheduled to come on stream in South America over the next few years may exert continued pressure on pulp prices, which may also affect Metsa Board's long position in soft wood pulp that is expected to grow with its constant equity holdings in associate company Metsa Fibre's new bioproduct mill in Aanekoski, Finland (expected to start up in 2017).

With an expected leverage (debt/EBITDA) of approximately 3.5x or below (net leverage ca. 2x) by year end 2015 (compared to 4.3x gross and 3x net leverage per December 2014 and expected EBITDA margins of above 10% all as adjusted by Moody's), Metsa Board is now strongly positioned at the Ba2 rating level. Following the refinancing exercises in 2013 and 2014, annual debt maturities are viewed as manageable until larger bullet maturities fall due in 2018 and 2019. Higher profitability and lower restructuring payouts allowed Metsa Board to return to significant positive free cash flow generation during 2014, yet announced investments in production capacities as well as increased dividend payments may marginalize free cash flow over the next few years.

The stable outlook reflects Moody's expectation that the group's paperboard operations will continue to perform solidly through 2015 despite the subdued economic environment in Europe, with further gradual improvements to come from ongoing efficiencies, the replacement of unprofitable paper capacities with profitable paperboard capacities, and growing demand in paper board.

Following Metsa Board's rights issue of approximately EUR98.4 million (net of transaction costs) in February 2015, the company's liquidity profile is strong including EUR360 million of cash and cash equivalents as per end of March 2015 (including interest-bearing receivables at Metsa Group's internal bank Metsa Group Treasury Oy), EUR14 million of cash funds and investments and EUR100 million undrawn bank revolving credit facility. Moreover, the group's Funds from Operations should be sufficient to cover future cash uses, capital expenditures, seasonal working capital peaks and increased dividend payments while at times relying on the group's liquidity facilities.

WHAT COULD MOVE THE RATING UP

A further rating upgrade would require Metsa Board to continue its track record of gradually improving operating profitability and cash flow generation by successfully completing the current investments in Husum and profitably grow the paperboard business globally. Quantitatively, Moody's would consider a rating upgrade if Metsa Board was able to sustain EBITDA margins of at least mid-double digit percentages, with Moody's adjusted leverage of debt/EBITDA moving towards 3x sustainably, and RCF/debt of around 20%.

WHAT COULD MOVE THE RATING DOWN

The rating could come under negative pressure if the company's debt/EBITDA as adjusted by Moody's were to exceed 4x or if EBITDA margins were to fall towards single digit percentages.

The Ba2 rating assigned to the EUR225 million senior unsecured notes is at the level of the group's CFR, considering that Metsa Board's existing debt instruments are mostly unsecured. Given the legacy nature and only marginal asset security of Metsa Board's priority ranking amortising pension loans in an amount of EUR184million as per March 2015, due between 2015 -2020, additional notching of the unsecured debt is not justified in our view.

The principal methodology used in this rating was Global Paper and Forest Products Industry published in October 2013. 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.

Metsa Board Corporation, headquartered in Espoo, Finland, is a leading European primary fibre paperboard producer. Metsa Board also produces office paper and coated papers as well as market pulp. Sales during the last twelve months to March 2015 amounted to approximately EUR2.0 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Matthias Volkmer
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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