TEXT-S&P:Toyota Industries profit recovery key after purchase plan

Tue Oct 23, 2012 4:05am EDT

Oct 23 - Standard & Poor's Ratings Services today said Toyota Industries Corp.'s (AA-/Negative/A-1+) planned acquisition of Cascade Corporation (not rated) will have only a minor direct impact on the company's financial standing. However, the effect of funding the acquisition could further pressure the ratings if the company fails to keep its operating and financial performance on a path to recovery sufficient to absorb the negative effect of the investment. On Oct. 22, 2012, Toyota Industries announced it would acquire U.S.-based Cascade Corp., the world's leading maker of forklift attachments. Toyota Industries plans to acquire all outstanding common stock in Cascade Corp. through a $7.59 million tender offer.

The negative outlook on Toyota Industries reflects the outlook on the 'AA-' long-term corporate credit rating on its parent, Toyota Motor Corp. (AA-/Negative/A-1+). The outlook also incorporates our view that growing uncertainties about demand for forklifts could slow a recovery in the company's business performance and financial standing compared with assumptions we factored into our base-case scenario.

Although measurements of Toyota Industries' financial performance are weak for the 'a-' stand-alone credit profile (SACP) we have assigned for the company, Standard & Poor's has a base-case scenario that the company's debt to EBITDA will improve to about 3.0x by the end of fiscal 2013 (ending March 31, 2014). However, improvement in this metric has already been below the pace we incorporated into our base-case scenario, with the ratio remaining at about 4.0x since fiscal 2010.

As a result, we consider the key for the company to maintain the ratings at the current level is to continue the recovery in its operational and financial performance. We would consider downgrading the company if it were unable to offset the negative effect of funding the acquisition of Cascade Corp. with a recovery in earnings and if a slower pace of recovery in the company's financial performance became more likely. We may lower the ratings on Toyota Industries if debt to EBITDA for the company is unlikely to fall to about 3.0x in the next year or two.

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