Fitch Assigns 'BB' to Novelis Credit Facility; Affirms 'B' IDR; Outlook Negative

Business Wire, July 24, 2007

NEW YORK -- Fitch Ratings has affirmed the Issuer Default Rating (IDR) for Novelis, Inc. and Novelis, Corp. (collectively, Novelis) at 'B' and assigned a Negative Rating Outlook. The company's previous senior secured bank debt ratings have been withdrawn. Ratings for the new credit facility of 'BB' were assigned and the senior unsecured debt ratings have been affirmed as follows:

Novelis, Inc.

--IDR 'B';

--Senior secured asset-based revolver 'BB/RR1';

--Senior secured term loan B 'BB/RR1';

--Senior unsecured notes 'B/RR4'.

Novelis, Corp.

--IDR 'B';

--Senior secured asset-based revolver 'BB/RR1';

--Senior secured term loan B 'BB/RR1'.

The Rating Outlook is Negative. Approximately $2.4 billion of debt is affected by the ratings.

The ratings action resolves Fitch's Rating Watch Negative for Novelis. Novelis' ratings were placed on Rating Watch Negative following the company's announcement that it had reached an agreement to be acquired by Hindalco Industries Limited (see Fitch's press release dated Feb. 13, 2007). The transaction has been completed, and total debt currently outstanding at Novelis is substantially similar to the amount outstanding pre-transaction.

Fitch notes that given the expiration of the change-of-control offer for the senior unsecured notes, the notes no longer benefit from the credit protection offered by the change-of-control provision, and therefore carry greater credit risk, although the ratings on the notes remain unchanged. Novelis made the requisite change-of-control offer for the notes at 101% of par, and $841,000 of the notes were tendered.

The Negative Outlook reflects the adverse impact of contractual price ceilings on Novelis' financial performance over the past several quarters, which is likely to continue through at least the first half of 2007. Improved financial performance stemming from a reduction or elimination of the price ceilings over the next few quarters could contribute to a review of the Outlook. Fitch also has concerns about the permanent financing structure of the Special Purpose Vehicle (SPV) Hindalco created in Canada to fund the purchase of Novelis' equity, and how the SPV's debt will be serviced. Although certain of the notes' covenants (such as a restricted payments test) limit the extent of potential withdrawals by the parent, Fitch believes credit risk is present due to the potential for this or similar such actions. Fitch recognizes the resolution of several internal control issues, key leadership vacancies and other concerns associated with the company's public filing status that had previously contributed to the Negative Outlook.

Novelis' current ratings are supported by the company's leading market position, strong and flexible asset base, emphasis on innovation and value-added applications, and solid cash-generating potential. Ratings concerns focus on high leverage, inflexible contract pricing with some customers, near-term cash flow constraints, high and volatile aluminum prices and some remaining material weaknesses in internal controls.

While Novelis is strategically important to Hindalco, Fitch does not expect to link Novelis' ratings to Hindalco's ratings if Hindalco is assigned an international rating in the future. Fitch believes the credit linkages between Novelis and Hindalco are weak to moderate due to a low level of expected operational integration, a lack of formal credit support, and restrictions on upstream dividends. The different jurisdictions of the two companies also support separate ratings. These factors outweigh Hindalco's ownership of Novelis and the presence of several Hindalco representatives on Novelis' Board of Directors. A factor that could change Fitch's position on linkages between the two companies is the final financing structure of the SPV Hindalco created in Canada to fund the purchase of Novelis' equity. The SPV is currently funded with $3.0 billion of bank facilities with terms of 18 months.

Fitch rates the debt of Hindalco Industries Ltd. 'AAA (ind)' on a national ratings basis in India. The ratings have been placed on Rating Watch with Negative implications. Fitch expects to resolve the Rating Watch as Hindalco's financing details are further finalized. Hindalco's current ratings denote the best credit risk relative to all other issuers or issues in the country (see below for an explanation of Fitch's National Ratings). This rating is therefore not directly comparable to the North American ratings on Novelis.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.> The suffix '(ind)' refers to National Ratings assigned by Fitch India. Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA (ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.