TEXT-Fitch rates Newell Rubbermaid's proposed notes 'BBB'
Nov 29 - Fitch Ratings has assigned a 'BBB' rating to Newell Rubbermaid Inc.'s (Newell) proposed $350 million senior unsecured notes. Fitch currently rates Newell as follows: --Long-term Issuer Default Rating (IDR) 'BBB'; --Short-term IDR 'F2'; --Commercial paper 'F2'; --$800 million revolving credit facility 'BBB'; --Senior unsecured notes and 5.5% convertible debt 'BBB'. Proceeds will be used to repay the company's 5.5%, $500 million medium-term note maturing on April 15, 2013. Cash on hand and short-term borrowings are expected to be used to repay the remaining $150 million. Newell continues to reduce overall debt balances. At Sept. 30, 2012, debt totaled $2.2 billion, down significantly from the almost $2.9 billion peak reached in 2008. Leverage has also declined. Total debt-to-operating EBITDA was 2.3x at the last 12 months ended Sept. 30, 2012, down from 3.2x at the end of 2008. Nonetheless, Fitch expects debt and leverage to remain near current levels. The new note contains a Change of Control Repurchase Event. Upon the occurrence of both a Change of Control and ratings below investment grade by at least two of the three rating agencies and unless Newell exercises its right to redeem the notes, the company will be required to make an offer to purchase the notes at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest. Newell's 'BBB' IDR reflects the firm's strong brands, considerable liquidity, and it's focused operating and financial strategy. The ratings also encompass the cyclical nature of a significant portion of the company's global business units as well as some commodity exposure, albeit at much lower levels than several years ago. The Stable Outlook reflects Newell's resumption of organic revenue growth since 2009, strong cash flow generation, and Fitch's expectation that shareholder-friendly actions will be prudent. There is cushion in the rating to accommodate bolt-on acquisitions or a prudent level of share repurchases as long as leverage (total debt with equity credit/EBITDA) remains in the 2x to 3x range. Fitch expects some pressure on core (organic) revenue growth given the company's moderate level of sales from developed markets in Europe. However, it should continue to be offset by growth in developing markets. Newell's developing markets, which represent approximately 15% of sales has grown approximately 12% year to date and the organic growth has remained positive at 2.2%. Newell is on track to meet its organic growth rate goal of 2% to 3% in 2012. In addition, the company's focus on cost control and Fitch's expectation that commodity prices have stabilized somewhat should ensure that profits and cash flows remain relatively stable. It is noteworthy that despite the fact that Newell has been restructuring for much of the past decade and will continue through 2015 with the recent expansion of Project Renewal, the firm has generated positive free cash flow since at least 1996. For the nine months ended Sept. 30, 2012, revenues increased 0.3% to $4.4 billion with organic growth (volume/price/mix) of 2.2% partially offset by negative foreign exchange translation of (1.9%). Adjusted EBITDA for the nine-month periods ending Sept. 30, 2012 and 2011 have been relatively flat at approximately $735 million. Newell's free cash flow (FCF) has rebounded to more than $250 million in each of the past three years from a cyclical low of $63 million in 2008. Year to date FCF is $145 million versus $67 million in the same period last year. Fitch expects FCF in the $250 million range in 2012. Newell's financial flexibility is ample with more than $963 million in liquidity and solid access to the capital markets. As of Sept. 30, 2012, the company had $250 million in cash on hand and $713 million available under its $800 million revolving credit facility which matures in December 2016. The $200 million 364-day receivables facility which matures in September 2013 was fully utilized. Except for the $500 million 5.5% note maturing in 2013 which will be repaid, there are no other long-term debt maturities until a $250 million note due in 2015. What Could Trigger a Rating Action: Future developments that may, individually or collectively, lead to a positive rating action include: --A change in Newell's portfolio of businesses such that there is less cyclicality. This could be accomplished by either reducing the percentage of cyclical business segments, such as Tools or Commercial Products, or increasing the company's geographic diversity away from large developed markets such as the U.S. Project Renewal's expansion to invest savings in 'Win Bigger' business and emerging market growth will be supportive of this change over time. --Operating with leverage at or below 2x. Future developments that may, individually or collectively, lead to a negative rating action or negative Outlook include: --A lengthy recession given that Newell's profitability and cash flows have historically bounced back to normal levels within 12-18 months after the end of previous economic downturns; --Leverage of more than 3x which could be caused by a change in management's financial strategy or a sizeable debt-financed acquisition. Neither of these events are contemplated. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology
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