CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Whirlpool Corporation's (NYSE: WHR) ratings, including the company's Issuer Default Rating (IDR), at 'BBB'. The Rating Outlook is Stable.
Fitch placed Whirlpool's ratings on Rating Watch Negative in July 2014 following the company's announcement that it has entered into binding agreements to acquire a majority interest in Indesit Company S.p.A. (Indesit) for approximately EUR758 million or $957 million (based on the exchange rate as of Sept. 30, 2014).
ACQUISITION AGREEMENT
In July 2014, Whirlpool entered into the following binding agreements:
--Share repurchase agreement to acquire Fineldo S.p.A.'s stake in Indesit, representing about 42.7% ownership;
--Share repurchase agreement with certain members of the Merloni family for a 13.2% stake in Indesit;
--Share repurchase agreement with Ms. Claudia Merloni for a 4.4% stake in Indesit.
On July 17, 2014, Whirlpool completed the purchase of 4.4% of Indesit shares from Ms. Claudia Merloni. On Oct. 14, 2014, Whirlpool completed the acquisition of 42.7% of Indesit shares held by Fineldo S.p.A. and 13.2% of Indesit shares held by certain members of the Merloni family.
The company now has 60.4% ownership of Indesit, representing a 66.8% voting stock in the company (including the treasury shares held by Indesit).
Whirlpool will now commence the steps to launch a mandatory tender offer for the remainder of Indesit's outstanding shares, with the intention to delist the company. The tender offer purchase price per share is equal to about $13.89 per share (based on the exchange rate as of Sept. 30, 2014). The company expects to complete the tender offer no later than the first quarter of 2015.
INDESIT ACQUISITION AND RATIONALE
Founded in 1930, Indesit is one of the leading European manufacturers and distributors of major appliances. Indesit has eight industrial sites (in Italy, Poland, the United Kingdom, Russia and Turkey) and approximately 16,000 employees.
During fiscal 2013, Indesit had sales of EUR2.67 billion and EBITDA of approximately EUR178.5 million. The company generated about 56% of revenues from Western Europe, 38% from Eastern Europe and 6% from non-European markets.
The proposed acquisition has good strategic rationale for Whirlpool. Indesit provides Whirlpool with a broader platform to expand its operations in Europe. Currently, about 16% of Whirlpool's revenues are generated from this region. On a pro forma basis (including Indesit), sales from Europe, Middle East and Africa will represent about 29% of Whirlpool's worldwide sales.
Appliance demand in Europe remains relatively weak. Whirlpool's sales in the EMEA region grew 4.8% during the first half of 2014 (1H'14) compared with 1H'13 but the 1H'14 sales are still 15.2% below the 1H'07 sales level. Indesit's revenues for the 1H'14 were 5.1% lower compared with 1H'13 sales, due to lower volumes and the negative effect of foreign currency translation, offset in part by positive price/mix. Fitch currently expects appliance sales in Europe will be flat to slightly higher in 2014 compared with 2013.
IMPACT ON RATINGS
While Fitch views the transaction as strategically positive for Whirlpool, the acquisition will meaningfully increase the company's debt and leverage levels. At the same time, Whirlpool also expects to close the acquisition of a 51% equity stake in Hefei Rongshida Sanyo Electric Co., Ltd. (Hefei) for an aggregate purchase price of RMB3.4 billion (approximately $547 million as of June 30, 2014).
In June 2014 (prior to the announcement of the Indesit acquisition), Fitch affirmed Whirlpool's IDR at 'BBB' and revised the Outlook to Positive from Stable with the expectation that the company's credit metrics continue to improve, including debt to EBITDA situating in the 1.0x-1.5x range and interest coverage consistently above 10x. An upgrade of Whirlpool's ratings to 'BBB+' in the next 12 months is now unlikely.
The rating affirmation and Stable Outlook reflects Fitch's expectation that debt to EBITDA will settle at around 1.5x - 2.0x and interest coverage will be above 9.0x within 12-24 months following the completion of the acquisitions of Indesit and Hefei.
Fitch now estimates that the company's debt to EBITDA will approximate 2.0x and funds from operations (FFO) adjusted leverage will be 3.5x by year-end 2015. Interest coverage is projected to be approximately 10.0x at the conclusion of 2015.
Fitch expects the company will reduce leverage in 2016, with debt to EBITDA projected to be about 1.5x, FFO adjusted leverage situating at 3.0x and interest coverage above 10.0x at the end of 2016.
RATING SENSITIVITIES
While Fitch does not expect a global economic downturn during the next 12 months, the company's risk profile is somewhat heightened by the significant debt incurred for the acquisition of Indesit as well as the pending acquisition of a 51% equity stake in Hefei. Negative rating actions may be considered if there is significant deterioration in global demand and consequently the company's operating performance, Whirlpool undertakes shareholder friendly activities funded by debt, and/or there is material judgment against the company related to existing regulatory proceedings, leading to leverage levels consistently exceeding 2.5x and interest coverage falling below 5.5x.
While unlikely in the next 12 months, positive rating actions may be considered if the company's financial performance is meaningfully better than Fitch's base case forecast, particularly debt-to-EBITDA consistently situating within a range of 1.0x - 1.5x and interest coverage sustaining above 10x, as Whirlpool continues to maintain a solid liquidity position.
Fitch has affirms the following ratings with a Stable Outlook:
Whirlpool Corporation
--Long-term IDR at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2';
--Senior unsecured notes at 'BBB';
--Bank revolving credit facility at 'BBB'.
Maytag Corporation
--Long-term IDR at 'BBB';
--Senior unsecured notes at 'BBB'.
Whirlpool Finance B.V.
--Short-term IDR at 'F2';
--Commercial paper (CP) at 'F2'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 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=904374
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