TEXT-S&P rates Manitowoc Co notes 'B+'

Fri Oct 5, 2012 12:26pm EDT

Overview
     -- Wisconsin-based crane and food service equipment manufacturer 
Manitowoc Co. Inc. has issued $300 million of new senior unsecured notes
due 2022 and expects to use proceeds to redeem its $150 million of senior notes 
due 2013 and to repay borrowings under the senior secured credit facility.
     -- We are assigning a 'B+' issue-level rating to the proposed senior 
unsecured notes with a recovery rating of '4'.
     -- We are affirming our 'B+' corporate credit rating on the company.
     -- The stable outlook reflects our expectation that Manitowoc's end 
markets will grow modestly over the next year. 


Rating Action
On Oct. 5, 2012, Standard & Poor's Ratings Services affirmed its 'B+' 
corporate credit rating on Manitowoc Co. Inc. The outlook is stable.

At the same time, we assigned a 'B+' issue-level rating and a '4' recovery 
rating to the company's proposed $300 million senior unsecured notes due 2022. 
The '4' recovery rating indicates expectations for an average (30% to 50%) 
recovery in the event of default.

We are also affirming our 'BB' issue-level rating and '1' recovery rating on 
the company's credit facilities and our 'B+' issue-level rating and '4' 
recovery rating on the company's other senior unsecured notes due 2018 and 
2020. A '1' recovery rating indicates our expectation of very high (90%-100%) 
recovery.

Manitowoc plans to use the proceeds from the notes issuance to redeem its $150 
million senior notes due 2013 and to repay a portion of its outstanding 
borrowings under its revolving credit facility.

Rationale
The ratings on Manitowoc reflect the company's "aggressive" financial risk 
profile, characterized by high debt and aggressive financial policies, which 
more than offsets its "fair" business risk profile. We expect the company's 
revenues to increase as the crane segment continues its recovery alongside a 
modest improvement in the food service segment. 

The company's credit measures have modestly improved with the gradual recovery 
in the crane end markets. We believe they will improve further but will likely 
still remain weak for the rating over the next few quarters. We believe that 
the company will pay down debt with the free cash flow it generates. 
Manitowoc's cash balance and ample availability on its revolver, plus our 
expectation of positive free cash flow generation for the year, should 
continue to support its adequate liquidity.

The company is one of the top two crane manufacturers serving the cyclical 
construction markets and is one of the top two manufacturers by market share 
of major products in the more-stable food service markets. We believe the 
company should continue to maintain good customer, product, and geographic 
diversity, with about half of its revenues coming from outside the U.S. It 
also maintains low-cost and efficient global manufacturing operations. We 
estimate sales in the crane business will account for about 60% of total 
revenues and sales in the food service segment for about 40%. In our opinion, 
the operating environment has stabilized some but likely will remain 
challenging in the near term, especially for the crane business. We expect 
further stabilization and the gradual recovery to continue through year-end 
and into 2013. The crane segment's backlog was about $944 million as of June 
30, 2012--a significant increase from year-end 2011 levels.

We estimate revenues will rise about 7% for 2012. We expect revenue growth in 
the crane segment of 8%-9%, similar to our economists' current forecast for 
residential and nonresidential construction and equipment spending. We believe 
increasing global demand will contribute to longer-term prospects. We believe 
the food service segment will improve modestly, with revenues increasing 
roughly 2%, in line with the economy. This growth projection is similar to our 
economists' current view on U.S. GDP growth for consumer spending. We estimate 
the EBITDA margin will remain somewhat steady at about 10%-11%, reflecting the 
expected recovery in the crane end markets and modest improvement in its food 
service segment.

For the quarter ended June 30, Manitowoc's sales increased by roughly 6% year 
over year because of better sales volumes in both the crane and food service 
segments. We believe higher volumes, continued growth in domestic end markets, 
the rise in demand in emerging markets, and overall cost control measures 
should improve profitability modestly over time. The company's EBITDA margin 
was about 12%--stable compared with the same period in 2011. 

We view Manitowoc's financial profile as aggressive. Total debt to EBITDA 

as of June 30, 2012, was about 5.5x and funds from operations (FFO) to total 
debt was about 11%. We believe credit metrics will improve further but will 
remain somewhat below our expectations over the next few quarters. The company 
likely will use its free cash flow, which we estimate to be more than $100 
million, for debt reduction, strengthening credit measures. For the current 
rating, we expect total debt to EBITDA of about 4x-5x and FFO to total debt of 
10%-15%.

Liquidity
We believe Manitowoc has adequate sources of liquidity to cover its needs in 
the near term, even if EBITDA were to unexpectedly decline. The company's has 
scheduled annual debt amortization of roughly $40 million annually, and no 
near-term debt maturities. Our assessment of Manitowoc's liquidity profile 
incorporates the following expectations and assumptions:
     -- We believe the company's sources of liquidity, including cash and 
facility availability, will exceed its uses by at least 1.2x over the next 12 
months.
     -- We believe net sources will remain positive, even in the unlikely 
event of a 15% decline in EBITDA.
     -- We expect that under its financial covenants (including a senior 
leverage covenant of 3.5x at year-end 2012), the company would remain in 
compliance even if EBITDA were to drop by about 15%.

Liquidity sources as of June 30, 2012, include cash and short-term investments 
of about $60 million and ample availability under its $500 million revolving 
credit facility maturing in 2016. The primary uses of liquidity in 2012 will 
include roughly $80 million in net capital expenditures. We also believe 
Manitowoc will generate more than $100 million in free cash flow and use this 
amount primarily for debt reduction.

Recovery analysis
See the recovery report on Manitowoc, to be published soon on RatingsDirect. 

Outlook
The outlook is stable. Although credit measures remain weaker than our 
expectations for the rating, we believe they will improve and approach levels 
more in line for the rating as a result of a modest recovery in crane end 
markets and stable performance in its food service business.

We could lower the ratings if the recovery of the crane end markets falters 
and causes deterioration of credit measures or hurts liquidity--for example, 
if FFO to total debt appears likely to be less than about 10% in the near 
term. We could raise the ratings if operating prospects improve meaningfully 
and the company's liquidity and credit measures support this trend. However, 
we consider an upgrade in the near term unlikely because we regard the 
company's current credit protection measures as weak for the rating and we 
don't think they are likely to improve sufficiently to support a higher rating.

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 
     -- Criteria Guidelines For Recovery Ratings On Global Industrials 
Issuers' Speculative-Grade Debt, Aug. 10, 2009 
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008


Ratings List
Ratings Affirmed

Manitowoc Co. Inc.
 Corporate Credit Rating                B+/Stable/--       
 Senior Secured                         BB                 
   Recovery Rating                      1                  
 Senior Unsecured                       B+                 
   Recovery Rating                      4                  

Manitowoc EMEA Holdings Sarl
 Senior Secured                         BB                 
   Recovery Rating                      1                  

Manitowoc Holding Asia SAS
 Senior Secured                         BB                 
   Recovery Rating                      1                  

New Rating

Manitowoc Co. Inc.
 $300 mil sr unsecd nts due 2022        B+                 
  Recovery Rating                       4