NEW YORK--()--Fitch Ratings has affirmed Newell Rubbermaid, Inc.'s (Newell) ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2';
--$800 million revolving credit facility at 'BBB';
--Senior unsecured notes at 'BBB'.
The Rating Outlook is Stable.
Approximately $1.67 billion of notes and the commercial paper program are affected by this action.
The ratings reflect Newells' well-known brands, considerable liquidity, and its focus on differentiated global products with prospects for higher growth and margins. The company's FCF stability is also a key strength. The ratings also encompass the cyclical nature of a significant portion of the company's global business units as well as some commodity exposure, albeit at much lower levels than several years ago.
The company has managed its diversified portfolio of business units well given economic pressures and volatility in commodity costs. The company has lowered its costs, simplified its capital structure and reduced debt such that its credit protection measures have improved markedly since 2008. Through the last 12 months ended Sept. 30, 2012 (LTM), Newell's leverage of 2.3 times (x) is down almost one turn from the 3.2x in 2008. FFO interest coverage has improved sequentially to 9.8x at the LTM from 3.5x in 2008.
Newell's FCF (operating cash flow less capital expenditure and dividends) ranged from $250 million to $375 million annually over the past three years. However, given the significant cash costs expected with the expansion of the Project Renewal restructuring program and recent increase in dividends, FCF is expected to be in the $200 million range over the medium term. The expansion of Project Renewal is expected to result in charges of $250 to $275 million through the second quarter of 2015 at a cash cost of $225 to $250 million. Incremental savings of up to $225 million is expected when the program is fully implemented by the end of the second quarter of 2015. It is noteworthy that despite the fact that Newell has been restructuring for much of the past decade and has experienced several economic downturns, it has generated positive free cash flow since at least 1996.
The Stable Outlook reflects the company's resumption of organic revenue growth since 2010, strong cash flow generation, and Fitch's expectation that share-holder friendly actions will remain prudent. Fitch expects some pressure on revenues given Newell's moderate level of sales from developed markets in Europe. However, it should be partially blunted by growth in developing markets. Additionally, the company's focus on costs and Fitch's expectation that commodity costs have stabilized somewhat should ensure that profits and cash flows remain relatively stable. At present, there is some cushion in the rating to accommodate bolt-on acquisitions or prudent shareholder-friendly actions as long as leverage (total debt with equity credit/EBITDA) remains in the 2x to 3x range.
For the nine months ended Sept. 30, 2012 revenues increased .3% as 2.2% in organic growth was partially offset by negative foreign currency translation of 1.9%. Adjusted EBITDA was essentially flat at 16.3%. Debt balances was unchanged at $2.2 billion. However, Fitch notes that over the course of 2012 the company has refinanced more than $1 billion in debt at lower rates and extended its debt maturities. These actions provide better financial flexibility in the future. Debt balances are expected to remain at the $2.1 billion level with leverage in the 2x to 2.5x range.
Newell's financial flexibility is ample. The company had $250 million in cash on hand and $713 million in revolver availability excluding $87 million in commercial paper outstanding at Sept. 30, 2012 which provides almost $1 billion in liquidity. Newell's $200 million 364 day receivable facility was fully utilized and Fitch expects the company to extend the maturity for another year in September 2013. Newell pre-paid the $500 million note that would originally have been due in April 2013 in Dec. 2012. As a result, long term maturities are very manageable with a $250 million 2% note coming due in June 2015. Newell is likely to refinance that note. There are no other long-term debt maturities until 2017.
KEY RATING DRIVERS:
What Could Trigger a Rating Action:
Future developments that may, individually or collectively, lead to a positive rating action include:
--A change in Newell's portfolio of businesses lessening cyclicality. This could be accomplished by either reducing the percentage of cyclical business segments, such as tools or industrial products, or increasing the company's geographic diversity. Project Renewal's expansion goals to invest savings growth initiatives will be supportive of this change over time.
--Operating with leverage at or below 2x.
Future developments that may, individually or collectively, lead to a negative rating action or negative Outlook include:
--A lengthy recession in a major market given that Newell's profitability and cash flows have historically bounced back to normal levels within 12-18 months after the end of previous economic downturns;
--Leverage of more than 3x which could be caused by a change in management's financial strategy or a sizeable debt-financed acquisition. Neither of these events are contemplated.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Evaluating Corporate Governance' (Dec. 12, 2012);
--Short-Term Ratings Criteria for Corporate Finance (Aug 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
Short-Term Ratings Criteria for Non-Financial Corporates