Fitch Affirms Eaton's IDR at 'A-'; Outlook Revised to Negative

CHICAGO--(Business Wire)--
Fitch Ratings has affirmed the long- and short-term ratings for Eaton
Corporation (Eaton) (NYSE: ETN) as follows:

--Issuer Default Rating (IDR) at 'A-';

--Senior unsecured bank credit facilities at 'A-';

--Senior unsecured long-term debt at 'A-';

--Short-term IDR at 'F2'.

--Commercial paper at 'F2'.

The Rating Outlook has been revised to Negative from Stable.

Approximately $4.2 billion of debt was outstanding at March 31, 2009.

The Negative Outlook recognizes Eaton's high leverage for an 'A-' rated issuer
and its dependence on a return to better conditions in its markets to help
rebuild financial results. If global economic conditions remain at depressed
levels for a sustained period, Eaton's leverage could improve more slowly than
anticipated and leave it more sensitive to normal credit risks than is
consistent with an 'A-' rating. These near-term concerns are partly offset by
Fitch's expectation that Eaton will return to stronger credit measures over the
long-term although the timing is uncertain.

Fitch previously downgraded Eaton by one notch in March 2009 due to the slow
pace of debt reduction following large acquisitions in 2008. Since then, the
economic outlook and eventual timeframe for a recovery have deteriorated further
for certain markets such as truck, auto and non-residential construction.
Debt/EBITDA was 2.75 times (x) at March 31, 2009 and reflects the combination of
an increase in debt related to the acquisitions in 2008 and the impact of the
global recession that has reduced Eaton's sales and operating margins. Leverage
is likely to increase through 2009 and could be around 3.0x at year-end.

The ratings could be downgraded if Eaton is unable to demonstrate meaningful
progress toward rebuilding its credit metrics, including an eventual reduction
in debt/EBITDA to well below 2.0x. On the other hand, the Outlook could be
revised to Stable if Eaton is able to realize better operating performance and
free cash flow to support debt reduction beginning in 2009. Eaton's actual
operating results will depend on the timing of an eventual recovery in its
various end markets. An early or rapid recovery is unlikely. Nearly all of
Eaton's businesses can be expected to report sharply lower sales in 2009,
especially in the truck and auto segments. Some of these businesses could
improve beginning in late 2009.

International markets, which represent slightly more than half of Eaton's market
exposure, could improve sooner than developed markets. On the other hand,
Eaton's late cycle businesses that sell into the aerospace, nonresidential
construction and industrial equipment markets could experience weakness through
2010 or later. Other factors such as stimulus spending and financing available
in the capital markets will also influence Eaton's results. The decline in
profitability should be partly mitigated by restructuring efforts that include a
10% reduction in the company's labor force. Eaton estimates that net benefits
from cost reduction actions taken in late 2008 and 2009 will be $375 million.
Additional benefits from current restructuring should be realized in 2010. These
actions are in addition to the ongoing integration of prior acquisitions.

Eaton can be expected to generate sufficient free cash flow to reduce debt
materially in 2009 and 2010, in part through working capital and net cost
reductions from restructuring. Operating performance will be pressured by
unusually difficult conditions in the global economy, offsetting some of the
impact of future debt reduction. Until Eaton's financial position improves, it
will have less financial flexibility than usual to cope with risks related to a
delayed economic recovery or cash requirements for pension contributions that
Eaton estimates at $271 million in 2009. Net pension liabilities have increased
substantially due to poor asset returns and could continue to be a meaningful
use of cash depending on market conditions. Eaton has halted significant
acquisitions and share repurchases until leverage improves.

Liquidity at March 31, 2009 included cash and short-term investments totaling
$434 million plus $1.7 billion of committed long-term bank facilities, offset by
$480 million of short-term debt and current maturities. Eaton's outstanding debt
at March 31, 2009 was $4.2 billion and included $550 million of five and ten
year notes issued in March 2009. The new debt was used to increase liquidity by
repaying commercial paper. Liquidity is further supported by the distribution of
long-term debt maturities which do not exceed roughly $300 million annually
during the next several years.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, Chicago
Eric Ause, +1-312-606-2302
Cheryl Peterson, +1-312-606-2309
Media Relations, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

Copyright Business Wire 2009