Fitch Rates Colgate's $1B Notes 'AA-'

Fri Mar 7, 2014 10:36am EST

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(The following statement was released by the rating agency) NEW YORK, March 07 (Fitch) Fitch Ratings has assigned an 'AA-' rating to Colgate-Palmolive Company's (Colgate) 1.75% $500 million medium-term notes due March 15, 2019 and 3.25% $500 million medium-term notes due March 15, 2024. The company plans to use $600 million of the proceeds to repay and retire the 1.25% $250 million medium-term notes due May 1, 2014 and the 4.75% Eur250 million medium-term notes due June 13, 2014. The remainder will be used for general corporate purposes including repaying outstanding commercial paper (CP) balances. As of Dec. 31, 2013, Colgate had no outstanding CP but typically has significant balances inter-quarter. The new notes are issued under the company's 1992 indenture and may be redeemed at Colgate's option. Given Colgate's high credit quality, repurchase upon change of control language has not been included in any notes to date. KEY RATING DRIVERS Scale, Strong Credit Measures The ratings reflect the company's scale with more than $17 billion in revenues at Dec. 31, 2013, leading market shares, consistently strong operating performance, and considerable liquidity. Colgate's adjusted EBITDA margin of approximately 27% is in the top tier of large personal care manufacturers. The company generated $1.1 billion free cash flow (cash flow from operations minus capital expenditures and dividends) last year. Leverage ended at 1.2x, meeting Fitch's expectations, and has been at this level or less in each of the past six years. Colgate's leverage is expected to remain in this range through the medium term. Geographic Diversification Colgate is one of the most geographically diversified consumer products companies, generating more than 75% of its revenues outside the United States. More than half of Colgate's revenues are generated from developing markets. Latin America (approximately 29% of revenues and adjusted operating profit before corporate expenses) is a particular stronghold where the company maintains very high toothpaste and toothbrush shares of more than 40% (Nielsen Holdings, N.V.). The ratings also encompass volatility in revenues and profits from developing markets. Significant Liquidity, Manageable Debt The company is highly liquid with a $1.85 billion un-utilized five-year bank facility expiring in November 2018, a 364-day $145 million revolver maturing in November 2014, more than $962 million in cash, and considerable access to the capital markets. The 364-day revolver is likely to be extended as it provides additional support to the company's large CP program. During the quarter, Colgate's CP outstanding can approach total revolver commitments. For example, average daily balances during 2013 were $1.7 billion. Debt balances of $5.7 billion increased modestly over last year's $5.2 billion. Fitch does not expect debt balances to increase markedly. Long-term debt maturities over the next four years are modest in relation to Colgate's substantial cash flow with $895 million, the largest amount, due in 2014. The bulk of the $895 million is being refinanced with the current issuances. Less than $500 million is due annually in 2015 and 2016. Much of these balances are expected to be refinanced as the company manages its capital structure. RATING SENSITIVITIES Future developments that may lead to a positive rating action include: A positive rating action is not likely as Colgate manages its financial metrics and performance commensurate with the current category. Fitch notes that Colgate executes sizeable share repurchase programs and/or medium-sized acquisitions whenever credit protection measures drift towards a higher rating category. Future developments that may, individually or collectively, lead to a negative rating action include: A negative rating action is not expected given Colgate's low business risk and conservative management team. While Colgate's credit protection measures are solid there is little room for further increases in leverage within this rating category. Fitch currently rates Colgate as follows: --Long-term Issuer Default Rating (IDR) 'AA-'; --Short-term IDR 'F1+'; --Senior unsecured notes 'AA-'; --Revolving credit facilities 'AA-'; --CP program 'F1+'. The Rating Outlook is Stable. Contact: Primary Analyst Grace Barnett Director +1-212-908-0718 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Judi Rossetti, CFA, CPA Senior Director +1-312-368-2077 Committee Chairperson Wesley E Moultrie, II, CPA Managing Director +1-312-368-3186 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available at ''. 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