Oct 18 - Fitch Ratings has assigned a 'BBB-' rating to RPM International
Inc.'s (RPM) proposed issuance of 10-year $250 million notes. The Rating Outlook
is Stable. A complete list of ratings is provided at the end of this release.
The notes will be senior unsecured obligations of RPM and will rank equally with
the company's $1.2 billion of debt as of Aug. 31, 2012. RPM plans to use the
proceeds to repay borrowings under its $600 million revolving credit facility
which expires June 29, 2017. RPM had used the borrowings primarily to finance
acquisitions, and it had an approximately $378 million outstanding balance under
its revolver at Sept. 30, 2012. The notes are being issued under the company's
indenture dated Feb. 14, 2008. Key covenants include restrictions on secured
debt, restrictions on sale and leaseback transactions, and mergers and asset
sales. There are no financial covenants. The notes will have a put option upon a
change of control and a downgrade of the notes below investment grade.
RPM's ratings reflect the company's conservative financial management and
balanced portfolio of specialty chemical products including paints and coatings,
roofing systems, construction chemicals, sealants and adhesives. Approximately
two-thirds of the company's revenues are generated in industrial markets.
One-third comes from consumer applications. RPM's products are largely geared
towards maintenance and repair. This focus mitigates exposure to the cyclicality
of the commercial construction and residential housing markets and provides the
company with more stable revenues and profits.
The ratings incorporate RPM's solid credit profile. The company's leverage
remains manageable with gross balance sheet debt-to-operating EBITDA of 2.5x,
based on $1,203 million of existing debt and $474 million of operating EBITDA
latest 12 months (LTM) ended Aug. 31, 2012. On a pro forma basis, including the
borrowings incurred subsequent to Aug. 31, 2012 to complete acquisitions, RPM's
total debt to operating EBITDA is 3.0x. Operating income from the acquisitions,
the company's financial flexibility and its ability to generate consistent free
cash flow should enable RPM to maintain its gross leverage closer to 2.5x. The
company had LTM free cash flow of $113 million. RPM was consistently free cash
flow positive throughout the past recession, and Fitch expects RPM to remain
free cash flow positive.
Factors that limit the ratings are the company's growth-through-acquisition
strategy and its fairly high dividend payout. RPM spent $269 million for
acquisitions for the LTM period ended Aug. 31, 2012, a step up from the
company's net acquisition average of roughly $75 million annually in the
previous five fiscal years. Subsequent to Aug. 31, 2012, RPM borrowed $242
million under its revolver for acquisitions and general corporate purposes. The
integration risk is mitigated by relatively small-to-medium size of the
acquisition targets, which are typically bolt-on in nature and complementary to
RPM's existing product portfolio and geographical reach. With regard to
dividends, RPM paid $113 million dividends to its shareholders over the past 12
months. The payout totals more than 35% of the company's cash flow from
operations of $305 million over the same period of time.
At Aug. 31, 2012, RPM had robust liquidity of $870 million, consisting of
approximately $257 million cash on-hand, $463 million available under the
company's $600 million senior unsecured revolving credit facility maturing June
2017, and full availability under its $150 million accounts receivables
RPM's revolving credit facility has two financial covenants: a debt-to-capital
maximum of 60% and an EBITDA interest coverage minimum of 3.5x. At Aug. 31,
2012, RPM was in compliance with these financial covenants. As calculated under
the facility, debt to capital stood at 49.6% and EBITDA interest coverage at
6.79x. Fitch expects RPM to remain in compliance with these covenants over the
lifetime of the facility.
The company's debt maturity profile is very manageable with only $3 million due
in the short term and $200 million 6.25% senior unsecured notes due in December
2013. Subsequent major maturities are $150 million in 2015, $250 million in 2018
and $450 million in 2019.
A subsidiary of RPM has exposure to asbestos claims. On May 31, 2010, Bondex
International Inc., a subsidiary of RPM, and its direct holding company,
Specialty Products Holding Corp. (SPHC) filed for Chapter 11 bankruptcy
protection to resolve all pending and future asbestos lawsuits. Neither RPM
International nor any operating subsidiaries were part of the filing. The
Chapter 11 filings target to establish a section 524(g) trust that will
compensate existing and future asbestos claims. The trust could be funded
through the sale of SPHC either back to RPM International or to a third party at
the end of the Chapter 11 proceedings. If approved by the bankruptcy court, it
isolates all asbestos claims to the 524 (g) trust. In addition, any future
asbestos claims against Bondex, SPHC or RPM International would be channeled to
the 524 (g) trust by a permanent injunction. SPHC has a $40 million
debtor-in-possession financing in place in order to fund its Chapter 11
proceedings, which are pending.
WHAT COULD TRIGGER A RATING ACTION
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--A permanent resolution of the asbestos liabilities.
--Significant debt reduction relative to cash flow.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--Failure to resolve the asbestos liabilities and a meaningful increase of
asbestos-related cash outflows.
--An erosion of profits and cash flows either due to softness in key end-user
markets or as the result of higher raw material costs.
--Acquisitions or dividends that significantly exceed internally generated cash
Fitch currently rates RPM International Inc. as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB-';
--Senior unsecured bank credit facility at 'BBB-';
--Senior unsecured notes at 'BBB-'.
The Rating Outlook is Stable.
Christopher M. Collins, CFA
70 W. Madison Street
Chicago, IL 60602
Monica M. Bonar
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Chemical Companies,' (May 13, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Chemical Companies
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