Fitch Expects to Rate SC Johnson's Proposed Notes 'A-'

NEW YORK--()--Fitch Ratings expects to assign a rating of 'A-' to SC Johnson & Son's (SCJ) proposed notes offering. SCJ will be accessing the debt market with a 10-year and 30-year tranche of notes totaling $500 million. Proceeds will be used for general corporate purposes.

With this transaction, SCJ has little room to materially increase debt without enhancing EBITDA and cash flow. Fitch had previously indicated that the company could comfortably increase total debt in the $400 million range without affecting its rating. (For additional details, see 'Fitch Affirms SC Johnson's IDR at 'A-'; Outlook Stable' from Feb. 13, 2014.)

KEY RATING DRIVERS

Brand, Geographic Diversity

SCJ is a privately held household products company with wide portfolio of leading brands such as Glade for air care, Raid in pest control, Windex in home cleaning, Ziploc in home storage solutions, and Kiwi in shoe care. Products are sold in more than 100 countries. The U.S. accounts for a moderate portion of operations; however, the company is not dependent on any one product or region.

Improved Operating Performance

Revenue growth has been, and should remain, in line with the household and personal care sectors' organic range of 1% to 6%. However, foreign exchange translation could hamper reported growth given a strengthening dollar.

Product mix and margins have improved with accretive bolt-on acquisitions and disposal of lower-than-corporate-average profitability brands or businesses. Additionally, SCJ has a strong focus on cost reduction which has led to sequential improvement in EBITDA margins in each of the past five years.

Limited Capital Market Access

The company intends to maintain its current private-company structure which limits access to the equity capital markets. Nonetheless, SCJ maintains strong access to various debt markets.

Significant Liquidity, Stable Credit Profile

Much of the company's liquidity is generated internally and back-up facilities are just a moderate portion of SCJ's total liquidity. SCJ's credit measures are stable and expected to be maintained in line with its 'A-' rating. Free cash flow (FCF) has improved and stabilized at significantly higher levels in the past three years. FCF generation should remain robust in the near term.

Debt is expected to remain at pro forma levels of $2.2 billion. Virtually all of SCJ's debt is unsecured. The majority has change of control puts and of these, several, including the credit agreement that matures in 2017, have leverage covenants. One note has very modest amortization through 2018. However, there is no significant debt maturity for the next three years.

RATING SENSITIVITIES

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. However, 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-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-term Ratings and Parent and Subsidiary Linkage' (May 2014).

--'Fitch Affirms SC Johnson's IDR at 'A-'; Outlook Stable' Feb. 13, 2014 '

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=886334

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Contacts

Fitch Ratings
Primary Analyst
Grace Barnett
Director
+1-212-908-0718
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Michael Zbinovec
Senior Director
+1-312-368-3164
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Grace Barnett
Director
+1-212-908-0718
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Michael Zbinovec
Senior Director
+1-312-368-3164
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com