Jarden is a leading provider of diversified niche consumer products, small
appliances, household products, fishing and outdoor products, and sports
equipment. Jarden's diversified sales mix includes ski, camping, fishing and
other outdoor products, in its largest segment, Outdoor Solutions (about 41%
of 2011 sales). The company's large portfolio of outdoor products includes
well-recognized brands such as Coleman, K2, Rawlings, and Trilene.
Through its Consumer Solutions segment (28% of 2011 sales) the company
manufactures or sources, markets, and distributes a variety of housewares and
small appliance products, under brands such as FoodSaver, Crock-Pot, Mr.
Coffee, Sunbeam and Oster. Within the housewares industry, we believe
retailers are concentrated, competition is intense and fragmented, and
companies generally can increase prices only by adding new features to
existing products. However, growth through acquisitions in the Outdoor
Solutions segment as well as growth into other product areas has reduced
Jarden's exposure to the housewares segment.
Jarden's two other business segments, Branded Consumables and Process
Solutions, constitute about 26% and 5% of 2011 sales, respectively.
Acquisitions have contributed significantly to Jarden's increased scale and
diversity in recent years.
The company has generally reported good operating results, despite a
challenging economic environment. For the first six months of 2012 Jarden's
reported revenues increased only slightly year over year, to $3.17 billion, or
up about 3.3% excluding the impact of acquisitions and foreign exchange
translations. For the 12 months ended June 30, 2012, reported revenues
increased about 4% from the prior-year period, while adjusted EBITDA margins
increased slightly to about 12.7%, from 12.5%, largely reflecting cost savings
programs, higher pricing, and a moderation in input cost inflation.
In March 2012 the company repurchased $435 million of common stock through a
modified Dutch auction, funded through a combination of cash and $300 million
in new term loans. Jarden's credit metrics have weakened modestly following
the incremental debt from this share repurchase program. For the 12 months
ended June 30, 2012, we estimate that the ratio of lease- and pension-adjusted
total debt to EBITDA was about 4.4x and funds from operations (FFO) to debt
was about 15%, compared to 4.2x and 16.3%, respectively for the prior-year
We believe Jarden's operating performance and credit measures will improve
over the next year. Our forecast assumptions include:
-- Sales will increase at a low-single-digit rate over the next year,
benefiting from modest volume growth and improved price realization from
higher prices and new products.
-- We expect adjusted EBITDA margins will expand modestly, reflecting
contributions from new products, pricing gains, and a moderation of input cost
-- We see capital expenditures of about $130 million for 2012, up from
$127 million in 2011. We expect minimal share repurchase activity for the rest
Based on our forecast, we estimate that by the end of 2012 adjusted leverage
will be about 4.2x and FFO to total debt will be above 15%. These credit
protection measures are in line with the indicative ratios for an "aggressive"
financial risk profile, which include leverage of 4x-5x and FFO to debt of
We believe Jarden's liquidity is strong, and we expect sources of cash are
likely to exceed cash uses for the next 12 to 24 months. Our view of the
company's liquidity profile incorporates the following expectations and
-- We expect liquidity sources (including cash, discretionary cash flow,
and availability under its $250 million revolving credit facility) will exceed
uses by more than 1.5x for the next 12 months.
-- We estimate that net sources would continue to be positive even with a
30% decline in EBITDA from current levels.
-- With its cash balance and availability under its revolving credit
facility, we believe the company would be able to absorb, without need for
refinancing, high-impact, low-probability events.
-- In our view, the company has well-established relationships with its
As of June 30, 2012, Jarden reported about $590 million in cash on its balance
sheet (reflecting a fully drawn $400 million accounts receivable
securitization facility) and had about $209 million of availability on its
$250 million revolving credit facility. Maintenance financial covenants
consist of a minimum interest coverage test and a maximum total leverage test.
As of June 30, 2012, we believe the company was in compliance with and had
adequate cushion under its financial covenants.
We expect Jarden to maintain adequate cash balances and availability on its
credit facility to fund seasonal working capital needs and its debt service
requirements. We expect the company to generate more than $300 million of free
cash flow after capital expenditures, which we believe will be about $130
million for 2012. We believe there is potential for additional tuck-in
acquisitions to be an additional use of cash.
Jarden's senior secured credit facility is rated 'BB+', two notches above the
corporate credit rating, and has a recovery rating of '1', indicating
expectations of very high (90% to 100%) recovery in the event of a payment
default. The rating on the company's 8% senior unsecured notes due 2016 and
6.125% senior unsecured notes due 2022 is 'BB-', the same as the corporate
credit rating, with a recovery rating of '3', indicating expectations of
meaningful (50% to 70%) recovery in the event of a payment default. The
ratings on the company's 7.5% subordinated notes due 2017 and 2020 are 'B',
two notches below the corporate credit rating, with a recovery rating of '6',
indicating expectations of negligible (0% to 10%) recovery in the event of a
payment default. (For the complete recovery analysis, see Standard & Poor's
recovery report on Jarden published May 29, 2012, on RatingsDirect).
Our rating outlook on Jarden is stable, reflecting our expectation for stable
operating performance and gradual improvement in credit measures. We expect
Jarden to sustain leverage of about 4.5x over the intermediate term.
We could consider lowering the ratings if the company adopts a more aggressive
financial policy or if the company encounters significant operating issues,
financial performance falls below our expectations, liquidity becomes
constrained or credit protection measures meaningfully weaken, or leverage
increases well above 5x. We estimate that if sales declined by more than 7%
and margins dropped by more than 100 basis points over the next year, perhaps
as a result of a sharp drop in consumer spending combined with increased input
costs, leverage would be above 5x.
Although unlikely in the near term, we could consider raising the rating if
the company can improve operating performance and credit measures, including
achieving and sustaining adjusted debt to EBITDA below 3.5x.
Related Criteria And Research
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- Key Credit Factors: Business And Financial Risks In The Branded
Consumer Products Industry, Sept. 10, 2008
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008