Fitch Affirms Whirlpool's IDR at 'BBB'; Outlook Stable

Mon Jun 10, 2013 10:10am EDT

(The following statement was released by the rating agency) CHICAGO, June 10 (Fitch) Fitch Ratings has affirmed Whirlpool Corporation's (NYSE: WHR) ratings, including the company's Issuer Default Rating (IDR) at 'BBB'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this press release. KEY RATING DRIVERS WHR's ratings and Outlook reflect its position as the world's largest appliance manufacturer, with leading market positions in many regions. WHR's global operating platform, increased manufacturing efficiency, and innovation capabilities have enabled it to improve its cost structure, compete more effectively around the world, and adjust to escalating material costs. Risks include intense global competition, volatility of raw material costs, sensitivity to business cycles, and ongoing regulatory issues. WHR's key credit metrics improved during 2012 and so far in 2013 relative to 2011 levels and remain appropriate for the rating category. The company's leverage as measured by debt-to-EBITDA stood at 1.5x for the latest 12-month (LTM) period ending March 31, 2013 compared with 1.5x at the end of 2012 and 1.7x at year-end 2011. Total adjusted debt-to-EBITDAR was 2.5x for the March 31, 2013 LTM compared with 2.5x at year-end 2012 and 2.8x at the end of 2011. Interest coverage improved to 8.9x for the LTM period from 8.3x during 2012 and 7.0x during 2011. Fitch expects the current credit metrics to remain relatively stable during fiscal 2013. OPERATING ENVIRONMENT The near-term operating outlook for global appliance demand remains relatively stable despite continuing challenges in Europe. In the U.S., Fitch expects appliance demand will increase slightly compared with last year's levels. Fitch currently projects U.S. housing starts will increase 18%, while new home sales will improve approximately 22% and existing home sales will grow 7.5% during the year. Home improvement spending in the U.S. is projected to advance 4% in 2013. Internationally, appliance shipments in Latin America and Asia are expected to grow modestly while demand in Europe will likely remain flat to slightly lower compared with 2012 levels. RESTRUCTURING INITIATIVES During the fourth quarter of 2011 (4Q'11), the company announced restructuring initiatives that will result in substantial cost and capacity reductions. The plan includes a workforce reduction of more than 5,000 positions primarily in North America and Europe and the closure and relocation of certain manufacturing facilities. These actions and previously announced initiatives are expected to result in $500 million of restructuring charges ($430 million of cash outlays) beginning in 4Q'11 with completion expected by the end of 2013. Annual savings of approximately $400 million are expected to be realized by year-end 2013. WHR incurred $78 million of restructuring charges during the 4Q'11, $237 million during 2012 and $42 million during the 1Q'13. Total restructuring charges are expected to be roughly $185 million in 2013 (the company expects to incur about $225 million of future cash expenditures for these initiatives). While Fitch has historically excluded restructuring charges from its calculation of recurring EBITDA, Fitch may re-consider this position if the company continues to have meaningful, ongoing restructuring charges. SOLID LIQUIDITY POSITION WHR has solid liquidity with cash of $750 million as of March 31, 2013, and no borrowings under its $1.725 billion revolving credit facility maturing in June 2016. The company also has committed credit facilities in Brazil, which provide up to 880 million Brazilian reais (approximately $438 million as of March 31, 2013) and mature in 2014. There were no borrowings under these facilities at the end of 1Q'13. Fitch expects WHR will have continued access to its multi-year revolving credit facility as it has sufficient room under the covenant requirements of the revolver. The company has significant debt maturing over the next four years, with roughly $1.3 billion coming due between 2014 and 2016. While WHR has sufficient cash and revolver availability to repay debt coming due in the next few years, Fitch expects it will again access the debt markets to refinance some of these upcoming maturities. WHR has demonstrated its ability to refinance its debt with the recent issuance of $250 million of 3.7% senior notes due 2023 and $250 million of 5.15% senior notes due 2043 to refinance $500 million of notes that matured in March 2013. The company generated $201 million of free cash flow (FCF: cash flow from operations less capital expenditures and dividends) for the March 31, 2013 LTM compared with $65 million during 2012. The 2012 FCF was reduced by a $275 million final installment payment to settle a Brazilian collection dispute. Fitch currently expects WHR will generate between $325 million and $375 million of FCF during 2013. Fitch expects management will remain disciplined in prioritizing the uses of its cash and cash flow. Funding the business as well as debt management and pension contributions will be the primary uses of cash flow. The company recently increased its quarterly cash dividend payment by 25%. The company also has $350 million remaining under its current share repurchase authorization. However, Fitch does not expect Whirlpool to undertake meaningful share repurchases in the short term. REGULATORY ISSUES There are ongoing regulatory issues that could negatively affect the company's financial profile. WHR's Brazilian operations have received governmental assessments from Brazil related to claims for income and social contribution taxes associated with the Brazilian government's export incentive program (BEFIEX) credits monetized by WHR from 2000 to 2002 and 2007 through 2011. As of March 31, 2013, the total outstanding tax assessment for income and social contribution taxes related to the BEFIEX credits, including interest and penalties, is approximately 1.2 billion Brazilian reais (equivalent to roughly $600 million). The company is disputing these tax matters in various courts and has not accrued any amounts relating to these assessments. There are also antitrust investigations relating to WHR's compressor business. Government authorities in Brazil, Europe and the United States and other jurisdictions have entered into agreements with the company and concluded their investigations. In connection with these agreements, the company has incurred roughly $360 million of charges, of which $111 million remain accrued. The company has $74 million of installment payments (plus interest) remaining to be made to government authorities at various times through 2015. WHR is also continuing to work toward a resolution of ongoing government investigations in other jurisdictions. Management indicated that it cannot reasonably estimate the amount it may incur and has not accrued charges relating to these ongoing investigations. RATING SENSITIVITIES Fitch currently does not expect the company's ratings to change in the next 12 months. However, a Positive Outlook may be considered if the company's credit metrics improve from current levels, particularly debt-to-EBITDA situating within a range of 1x-1.5x, interest coverage consistently above 10x, and if WHR continues to maintain a solid liquidity position. Negative rating actions may be considered if there is significant deterioration in global demand and the company'soperating performance, and as a result leverage levels consistently exceed 2.5x and interest coverage is below 5.5x. Fitch has affirmed the following ratings: Whirlpool Corporation --Long-Term IDR at 'BBB'; --Short-Term IDR at 'F2'; --Commercial paper at 'F2'; --Senior unsecured notes at 'BBB'; --Bank revolving credit facility at 'BBB' (Whirlpool Corp., Whirlpool Europe B.V., Whirlpool Finance B.V. and Whirlpool Canada Holding Company as borrowers). Maytag Corporation --Long-Term IDR at 'BBB'; --Senior unsecured notes at 'BBB'. Whirlpool Finance B.V. --Short-Term IDR at 'F2'; --Commercial paper (CP) at 'F2'. Contact: Primary Analyst Robert Rulla, CPA Director +1-312-606-2311 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Robert Curran Managing Director +1-212-908-0515 Committee Chairperson Mark Oline Managing Director +1-312-368-2073 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Short-Term Criteria for Non-Financial Corporates' (Aug. 8, 2012); --'Evaluating Corporate Governance' (Dec. 12, 2012). Applicable Criteria and Related Research: Evaluating Corporate Governance here Short-Term Ratings Criteria for Non-Financial Corporates here Corporate Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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