Fitch: No Immediate Rating Action for Sherwin-Williams from California Lead-Based Paint Ruling

Wed Dec 18, 2013 9:51am EST

(The following statement was released by the rating agency) CHICAGO, December 18 (Fitch) According to Fitch Ratings, there is no immediate change to The Sherwin-Williams Company's (NYSE: SHW) ratings, including the company's Issuer Default Rating (IDR) of 'A-', following the Superior Court of California's proposed statement of decision against Sherwin-Williams and two other defendants. SANTA CLARA LEAD-BASED PAINT LITIGATION CASE On Dec. 16, 2013, a California Superior Court judge proposed a statement of decision ordering Sherwin-Williams and two other companies (ConAgra Grocery Products Company and NL Industries, Inc.) to pay $1.1 billion into a fund to be used to clean-up hazards from lead-based paint in homes in the state of California. The Santa Clara County, California proceeding was initiated in March 2000 by 10 counties and cities in the state of California and asserted a claim for public nuisance, alleging that the presence of lead products for use in paint and coatings in, on and around buildings in the plaintiff's jurisdictions constitutes a public nuisance. The proposed $1.1 billion liability is joint and several. Sherwin-Williams plans to appeal the decision and has 15 days to file their objections to the Superior Court judge's proposed decision. Should the Superior Court judge reject the defendants' objections and enter a final decision, the defendants can further appeal the verdict with the California Court of Appeals, the California Supreme Court and, finally, the U.S. Supreme Court. Fitch expects that this case will unlikely be resolved in the near term. If a judgment is entered against the defendants and the Superior Court ruling is appealed, Sherwin-Williams may be required to post a bond, or other types of financial instruments, in order to stay the collection of the judgment. Sherwin-Williams currently has solid liquidity, including approximately $2 billion of revolving and letters of credit facilities and $1.04 billion of cash. (The company would be in default under its $1.05 billion revolving credit facility if it incurs final judgments in excess of $75 million and not covered by insurance and that remain undischarged for more than 60 days and are not effectively stayed, vacated or bonded pending appeal.) Aside from the potential liability associated with the abatement costs, there is also increased possibility that the California decision could have broader ramifications by encouraging similar legal actions from other state and/or municipalities. Following the February 2006 jury verdict against Sherwin-Williams and other defendants in the State of Rhode Island in a similar public nuisance case, the State of Ohio and several cities in Ohio individually initiated proceedings in state court in 2006 and 2007 against Sherwin-Williams and other companies asserting claims for public nuisance. These actions in Ohio were subsequently voluntarily dismissed by the plaintiffs after the Rhode Island Supreme Court reversed the public nuisance judgment against the company and the other defendants in 2008. Fitch will monitor future rulings and take appropriate rating actions if it becomes clear that any future payout would have a material adverse effect on the company's leverage, financial condition, results of operations or liquidity. Fitch currently rates SHW with a Stable Outlook as follows: --Long-term IDR 'A-'; --Senior unsecured notes 'A-'; --Unsecured bank credit facilities 'A-'; --Short-term IDR 'F2''; --Commercial Paper '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 Megan Neuburger Senior Director +1-212-908-0501 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 5, 2013). Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage 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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