TEXT-Fitch affirms SC Johnson's IDR at 'A-'; outlook stable
Feb 15 - Fitch Ratings has affirmed its ratings on S.C. Johnson & Son, Inc. (SCJ) as follows:
--Issuer Default Rating (IDR) at 'A-';
--Short-term IDR at 'F2';
--Commercial Paper at 'F2';
--Senior unsecured notes at 'A-';
--Bank credit facility at 'A-'.
The Rating Outlook is Stable. Approximately $1.2 billion of debt is affected by this rating action.
KEY RATING DRIVERS
SCJ is a privately held household products company with leading brands such as Glade(c) for air care, Raid(c) in pest control and Windex(c) in home cleaning. The ratings reflect SCJ's diverse portfolio of leading brands, geographic diversity and considerable liquidity. The company has improved its product mix and margins through recent M&A activities. Additionally, similar to most companies in the sector ther is a strong focus on cost reduction. As a result, SCJ's gross margins have had relatively little variability over the past four years despite notable pressure from resin and packaging costs. FCF was flat with the prior year and is expected to remain solid through the medium term.
The Stable Outlook is based on the company's ample liquidity and solid credit protection measures within the 'A-' category. Funds from operations (FFO) Interest coverage was essentially flat. Leverage (Debt/EBITDA) has been trending downward and the company has a good cushion within this metric. Debt amortizations are modest for the next four years.
SCJ closed on several bolt-on acquisitions since 2010 and may continue to do so in the future. Transformational acquisitions are not expected in near term. Fitch notes that as a private company SCJ has limited access to equity capital markets; therefore, acquisitions are likely to be funded with internally generated cash or debt.
For the last 12 months ending Sept. 28 2012 revenue growth was positive. Fitch expects very modest revenue growth for the household and personal care sector due to poor macro-economic factors in Europe and shrinkage in some categories in the U.S. Fitch expects that acquisitions and faster velocity in developing markets should result in modest revenue improvements. Concurrently, cost reduction efforts with some sales leverage should support margin improvements.
Virtually all of SCJ's debt is unsecured. The majority of company's debt has change of control puts and of these, several including the credit agreement have leverage covenants. Debt amortizations are modest during the 2013 through 2017 calendar years.
Future developments that may, individually or collectively, lead to a positive rating action or Outlook revision include:
--SCJ commits to operating with leverage half a turn less than current levels while continuing its current business momentum and strong cash flow generation.
Future developments that may, individually or collectively, lead to a negative rating action include:
--The company engages in a large leveraged acquisition or materially increases its leverage for other reasons that signal a change in its financial strategy. This is not expected.
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