NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to to assign a rating of 'A-' to SC Johnson & Son's (SCJ) proposed notes offering. SCJ will be accessing the debt market and issuing 30 year notes. Promptly after the notes are priced, a private offer will be made to exchange up to $225 million in aggregate principal amount of its outstanding $300 5.75% notes due in 2033 and $150 6.75% notes due in 2028. The premium related to the exchange will be paid with cash on hand.
The final amount of the offering is not yet decided, but Fitch believes SCJ has room to moderately increase debt levels. (For additional details, see 'Fitch Affirms SC Johnson's IDR at 'A-'; Outlook Stable' from Feb. 15, 2013.) Fitch has determined that the company could comfortably increase total debt by $400 million range with this offering without impacting its rating.
KEY RATING DRIVERS
SCJ is a privately held household products company with leading brands such as Glade for air care, Raid in pest control and Windex in home cleaning. The ratings reflect SCJ's diverse portfolio of leading brands, geographic diversity and considerable liquidity. The company has improved its product mix and margins through recent M&A activities. Additionally, SCJ has a strong focus on cost reduction, as do most companies in the sector. As a result, SCJ's gross margins have had relatively little variability over the past four years despite notable pressure from resin and packaging costs. FCF at the last 12 months ended Dec. 28, 2012 was up moderately and is expected to remain solid through the medium term.
The Stable Outlook is based on the company's ample liquidity and solid credit protection measures within the 'A-' category. Leverage (Debt/EBITDA) has been trending downward and the company has a good cushion within this metric. Debt amortizations are modest for the next four years.
SCJ closed on several bolt-on acquisitions since 2010 and may continue to do so in the future. Transformational acquisitions are not expected in the near term. Fitch notes that as a private company SCJ has limited access to equity capital markets; therefore, acquisitions are likely to be funded with internally generated cash or debt.
For the last 12 months ending Dec 28, 2012 revenue growth was positive. Fitch expects very modest revenue growth for the household and personal care sector due to poor macro-economic factors in Europe and shrinkage in some categories in the U.S. Fitch anticipates that acquisitions and faster velocity in developing markets should help to offset developed market malaise. Concurrently, SCJ's cost reduction efforts with some sales leverage should support margin improvements.
Virtually all of SCJ's debt is unsecured. The majority of company's debt has change of control puts and of these, several including the credit agreement have leverage covenants. Debt amortizations are modest during the 2013 through 2017 calendar years.
Future developments that may, individually or collectively, lead to a positive rating action or Outlook revision include:
--If SCJ commits to operating with leverage half a turn less than current levels while continuing its current business momentum and strong cash flow generation.
Future developments that may, individually or collectively, lead to a negative rating action include:
--If the company engages in a large leveraged acquisition or materially increases its leverage for other reasons that signal a change in its financial strategy. This is not expected.
Fitch currently rates SCJ as follows:
--Issuer Default Rating (IDR) 'A-';
--Short-term IDR 'F2';
--Commercial Paper 'F2';
--Senior unsecured notes 'A-';
--Bank credit facility 'A-'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012.
Applicable Criteria and Related Research
Corporate Rating Methodology