TEXT-S&P revises Brink's Co outlook to negative

Fri Mar 9, 2012 4:04pm EST

Overview	
     -- U.S.-based secure transportation company Brink's is experiencing	
margin pressures in its European and North American operations. This, coupled 	
with an increase in unfunded postretirement obligations, has caused some 	
deterioration in credit metrics.	
     -- We are affirming our ratings on the company but are revising the 	
outlook to negative from stable.	
     -- If credit metrics deteriorate without the likelihood of rebounding, we 	
could lower the ratings. 	
	
Rating Action	
On March 9, 2012, Standard & Poor's Ratings Services affirmed its ratings, 	
including its 'BBB' corporate credit rating, on Richmond, Va.-based The 	
Brink's Co. but revised the outlook to negative from stable.	
	
Rationale	
The outlook revision reflects recent deterioration in Brinks' credit metrics, 	
stemming from cyclical and competitive pressures in its European and North 	
American operations and an increase in unfunded postretirement benefit 	
obligations. Brink's funds from operations (FFO) to debt fell to 30% in 2011 	
versus 33% in 2010. We characterize Brink's business risk profile as 	
"satisfactory" and its financial risk profile as "intermediate" according to 	
our criteria. For a company with an "intermediate" financial risk profile, we 	
typically expect FFO to debt to be in the 30%-45% range. Our ratings 	
incorporate an expectation that the actions Brink's is taking to improve 	
profitability, coupled with a gradually improving global economy, will lead to 	
improved credit metrics over the next two years, with FFO to debt improving to 	
at least the mid-30% area. 	
	
The ratings reflect Brink's recognized brand name in the cash-in-transit 	
(armored car) and cash management/logistics industry. It has an established 	
reputation for quality and reliability, good geographic and customer 	
diversity, and moderate financial policies, in our assessment. Competitive and 	
somewhat cyclical markets and sizable off-balance-sheet obligations offset 	
these strengths. Brink's estimates that it holds a 19% share of the fragmented 	
global secure logistics market. The company has been in this business for more 	
than 150 years and serves a diversified base of long-time, established 	
customers that include numerous leading financial and commercial institutions 	
around the world. Brink's generates about 74% of revenues and 87% of operating 	
earnings outside North America. Brink's is in the process of looking for a new 	
CEO after the retirement last year of the former CEO. Standard & Poor's does 	
not expect the transition to a new CEO to change the company's business or 	
financial strategy.	
	
Strategically, the company is focused on improving segment margins by cutting 	
costs at underperforming operations and increasing sales of higher-margin, 	
more value-added services while maintaining its significant market share in 	
the more-mature cash-in-transit business. It has made work force reductions in 	
the U.S. and consolidated six regional offices into four, which it hopes will 	
result in $10 million-$20 million in savings this year. In Europe, it is 	
evaluating all of its operations and has indicated that it might exit those 	
markets where it cannot make a reasonable return. 	
	
We expect that these actions will lead to improved credit metrics over time. 	
However, we believe that pressures facing financial institutions and uncertain 	
economic conditions, especially in Europe, will likely temper the improvement 	
over at least the next few quarters. Brinks' late 2010 acquisition of a 	
Mexican cash-in-transit operation, which is currently slightly profitable, is 	
also depressing margins, but Brink's is continuing to invest in this business, 	
and we believe profitability at this operation will improve over time. 	
	
Brink's has material postretirement obligations, accounting for a significant 	
proportion of total adjusted debt. Given the size of postretirement 	
obligations relative to on-balance-sheet debt, changes in these obligations 	
have a greater-than-normal impact on credit metrics. Underfunding of these 	
obligations increased to $457.7 million in 2011 versus $317.9 million in 2010 	
as a result of lower discount rates and asset returns. Brink's has registered 	
$150 million in new common stock in 2012 and may issue shares to meet required 	
contributions to the pension plan this year. It recently made a $9 million 	
stock contribution. The company estimates that it will have to make 	
contributions totaling $228 million over a six-year period ending in 2017, 	
based on actuarial assumptions at the end of 2011. 	
	
Liquidity	
We characterize Brink's liquidity as "strong" under our criteria. We believe 	
that sources of liquidity are likely to comfortably exceed uses for the next 	
12 to 24 months. We also believe sources would exceed uses even if EBITDA were 	
to fall by 30%. 	
	
Sources of liquidity include cash on hand, borrowing capacity under existing 	
credit facilities, and internally generated cash. As of Dec. 31, 2011, cash 	
and marketable securities totaled about $183 million. The company recently 	
amended its $400 million unsecured credit facility to increase the size to 	
$480 million and extend the maturity date to January 2017. On Dec. 31, 2011, 	
about $290 million was available for borrowing. The facility contains various 	
covenants, including limitations on total debt and a minimum interest coverage 	
ratio. As of Dec. 30, 2011, the company was comfortably in compliance with its 	
covenants and had significant cushion. Brink's also has two unsecured letter 	
of credit (LOC) facilities totaling $139 million, of which $25 was available 	
on Dec. 30, 2011. A $54 million LOC facility expires in December 2014, and an 	
$85 million LOC facility expires in July 2015. In addition, the company has 	
three unsecured multicurrency bank credit facilities with about $37 million 	
available. In January 2012, the company entered into a $25 million unsecured 	
letter of credit facility that expires in December 2014. The company faces 	
modest debt maturities over the next few years.	
	
Capital expenditures are likely to represent the largest use of cash over the 	
next two years. The company spent $196.2 million on capital expenditures in 	
2011 and $148.8 million in 2010. Some of the increase in 2011 was related to 	
investments in the recently acquired operations in Mexico. The company faces 	
modest debt maturities over the next few years. Brink's periodically makes 	
small strategic acquisitions, and we expect the company to continue to pursue 	
these investment opportunities over time, although given current credit 	
metrics, we believe the company has limited capacity within our current rating 	
to pursue acquisitions over the next year. Brink's made no significant 	
acquisitions in 2011 but spent $100.7 million on acquisitions in 2010, 	
including the $60 million acquisition of the cash-in-transit provider in 	
Mexico. In the past, the company has used cash to fund a modest share 	
repurchase program. However, Brink's does not currently have a share 	
repurchase authorization in place.	
	
Outlook	
The outlook is negative. Competitive pressures, increased postretirement 	
obligations, and economic uncertainty have contributed to a decline in credit 	
metrics over the past year. Credit metrics are currently at the low end of our 	
expected range, and we do not expect to see meaningful improvement until 	
2013-2014. We could lower the rating if credit metrics deteriorate as a result 	
of operating challenges or a further increase in unfunded postretirement 	
obligations, resulting in FFO to debt falling to less than 30%. We believe an 	
upgrade is unlikely over the next two years, but we could raise the rating if 	
FFO to debt increases to 50% and we expect it will stay there for a sustained 	
period.	
, 2008	
	
Ratings List	
Ratings Affirmed; Outlook Revised	
                                        To                 From	
The Brink's Co.	
 Corporate credit rating                BBB/Negative/--    BBB/Stable/--	
 Senior unsecured                       BBB
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