New York, November 14, 2012 -- Moody's affirmed the ratings of Patheon, Inc. ("Patheon"), including the Corporate Family Rating and Probability of Default Rating of B3, and changed the rating outlook to positive from stable. Moody's also assigned a B3 to the proposed $650 million credit facility, including a $565 million term loan and a $85 million revolving credit facility. The proposed credit facility will be used to acquire Banner Pharmacaps ("Banner") for $255 million and repay Patheon's existing debt. Moody's also changed Patheon's Speculative Grade Liquidity rating to SGL-2 from SGL-3, reflecting improved liquidity as a result of the refinancing transaction and our expectation for improved free cash flow over the next 12-18 months.

Ratings affirmed:

Corporate Family Rating, B3

Probability of Default Rating, B3

Ratings assigned:

$565 million senior secured term loan due 2019, B3 (LGD3, 47%)

$85 million senior secured revolving credit facility due 2017, B3 (LGD3, 47%)

Ratings changed:

Speculative Grade Liquidity rating to SGL-2 from SGL-3

The rating outlook was changed to positive from stable

Ratings to be withdrawn at close of transaction:

$75 million ABL facility due April 2014, B2 (LGD 3, 43%)

$280 million Senior Secured notes due April 2017, B3 (LGD 3, 46%)

The B3 Corporate Family Rating reflects the significant increase in debt that Patheon is assuming in connection with its acquisition of Banner as well as Patheon's track record of low returns on invested capital and negative free cash flow. The rating also reflects broader challenges in the contract manufacturing industry, including overcapacity and pricing pressure. Further, the significant fixed costs of Patheon's business lead to high operating leverage and margins that are extremely sensitive to revenue and product mix. While this is positive in an environment of revenue growth, it creates the potential for earning volatility. The rating balances the company's improved scale and diversity as a result of the Banner acquisition, with risks associated with the integration, particularly at a time when Patheon is undergoing a significant turnaround in its stand-alone operations. The ratings are supported by Patheon's leading market position in the pharmaceutical contract manufacturing arena and our expectation that demand from pharmaceutical companies for contract manufacturing services will be sound over the long-term.

The positive outlook reflects Moody's belief that, if Patheon is able to continue to improve its operating performance the way it has done over the past three quarters and integrate Banner without disruption, then Patheon's leverage would decline rapidly and the company would generate sustained positive free cash flow, potentially leading to a rating upgrade.

The SGL-2 rating reflects Moody's expectation of good liquidity over the next 12 months supported by availability under lines of credit, improving cash generation and lack of maintenance covenants on the term loan.

Moody's could upgrade the ratings if the company is able to continue to improve profitability, reduce earnings volatility and sustain debt to EBITDA that is below 4.5 times and interest coverage that is above 1.5 times, with sustained positive free cash flow.

Moody's could downgrade the ratings if it believes that interest coverage (as defined as EBITDA less capital expenditures to interest expense) will be sustained below 1.0 times, or that free cash flow will remain negative (exclusive of unusual items such as severance).

Patheon Inc. ("Patheon"), headquartered in Mississauga, Ontario, Canada is a leading provider of commercial manufacturing and pharmaceutical development services ("PDS") of branded and generic prescription drugs to the international pharmaceutical industry. Patheon's stock is publicly traded on the Toronto Stock Exchange, and the company files with the SEC. JLL Partners, a private equity firm, owns approximately 56% of the company's restricted voting shares. For the twelve month period ended October 31, 2012Patheon has estimated revenues to be around $740 million.

The principal methodology used in rating Patheon, Inc was the Global Business & Consumer Service Industry Rating Methodology published in October 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.

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Jessica Gladstone Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Peter H. Abdill, CFA 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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