Feb 12 - Fitch Ratings has assigned an 'A' rating to E. I. du Pont de
Nemours and Company's (DuPont) proposed $2 billion note issuance with
tenors of 10 and 30 years. 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 DuPont and will rank equally
with the company's $11.7 billion of debt as of Dec. 31, 2012. DuPont plans to
use the proceeds for general corporate purposes, including the repayment and
refinancing of debt. The notes are being issued under the company's indenture
dated June 1, 1992. 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 make whole call provisions
as well as a put option upon a change of control and a downgrade of the notes
below investment grade.
KEY RATING DRIVERS
The ratings reflect DuPont's strong business profile, solid liquidity, and
substantial free cash flow generation. DuPont benefits from end-market
diversification and global reach (particularly into emerging markets),
integrated operations and leading market positions and brands across multiple
segments. The company's product portfolio is primarily R&D-based and often
patent protected, enabling sustainable market advantages and high operating
DuPont's credit metrics are in line with Fitch's expectations. The company
generated $1.5 billion in free cash flow in 2012, meeting Fitch's expectation of
greater than $1 billion. DuPont's total debt-to-operating EBITDA was 2.1 times
(x), greater than Fitch's expectation of below 2.0x. However, DuPont Performance
Coatings (DPC) was reclassified as a discontinued operation, and including
EBITDA from that business, total debt-to-adjusted EBITDA would be below 2.0x.
Net debt to operating EBITDA at Dec. 31, 2012 was 1.3x, meeting Fitch's
expectation of below 1.5x.
This issuance along with the divestiture of DPC will keep DuPont's gross
leverage above 2.0x in the near term. However, net leverage is expected to
remain well below 1.5x and free cash flow will is forecast to be greater than $1
billion. Further, DuPont has initiated a cost cutting plan that it expects will
achieve pre-tax cost savings of approximately $300 million in 2013 increasing to
$450 million per year in subsequent years. The savings from the plan will offset
a large portion of the operating income of DPC. Through growth and repaying
maturities with cash, Fitch expects DuPont's gross leverage to be below 2.0x by
Liquidity should remain strong with expected free cash flow generation after
capital expenditures and dividends of at least $1 billion in 2013, $4.4 billion
in cash on hand and marketable securities and $4.3 billion in available credit
at Dec. 31, 2012. The company's $3.5 billion revolver is due in February 2015
and contains a debt-to-capital covenant with a maximum of 67%. DuPont has
significant headroom under the covenant which it is expected to maintain.
Near-term maturities are manageable with $1.3 billion due in 2013, $1.7 billion
due in 2014, $1.5 billion due in 2015, and $1.6 billion due in 2016.
A rating concern is the underfunding of the pension funds. The U.S. pension
plans with plan assets were underfunded by $6.6 billion at Dec. 31, 2012. The
company does not expect to make contributions for 2013 after making
contributions of roughly $500 million in 2010 and early 2012. However, Fitch
recognizes DuPont may make significant cash contributions to the pension plan in
the future given the substantial underfunded position of the company's pension
Positive: Future developments that could lead to positive rating actions
--Total debt to EBITDA below1.5x on a midcycle basis in combination with annual
FCF over $1.5 billion.
Negative: Future developments that could lead to negative rating actions
--Leveraging transactions: debt financed share repurchases, dilutive
--Diminished cash balances while gross leverage remains above 2.0x;
--Weak or negative FCF leading to incremental borrowings.
FULL RATINGS LIST
Fitch rates DuPont as follows:
--Issuer Default Rating (IDR) 'A';
--$3.5 billion unsecured bank revolver 'A';
--Senior unsecured notes 'A';
--Senior unsecured debentures 'A';
--Short term IDR 'F1';
--Commercial Paper 'F1'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Chemical Companies' (Aug. 9, 2012);
--'2013 Outlook: North American Chemicals Industry' (Jan. 28, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Chemical Companies
2013 North American Chemical Outlook