December 4, 2012 / 8:50 PM / 5 years ago

TEXT - S&P affirms Oshkosh Corp 'BB' rating

     -- Carl Icahn's tender offer to buy the outstanding shares of specialty 
vehicle manufacturer Oshkosh Corp. did not reach the 25% threshold, and
he has  stated the offer will not be extended.
     -- We are affirming our ratings, including the 'BB' corporate credit 
rating, on Oshkosh and removing them from CreditWatch with negative 
     -- The outlook is stable because we believe the risks to financial policy 
and changes in business mix we associated with the tender offer have been 

Rating Action
On Dec. 4, 2012, Standard & Poor's Ratings Services affirmed its ratings, 
including the 'BB' corporate credit rating, on Oshkosh, Wis.-based Oshkosh 
Corp. and removed the ratings from CreditWatch with negative implications, 
where they had been placed on Oct. 12, 2012. The outlook is stable.

The affirmation reflects Icahn's announcement that he will not proceed with a 
tender offer for Oshkosh's shares after less than 25% of outstanding shares 
were tendered by the Dec. 3 deadline previously set. We believe this reduces 
uncertainty regarding the leverage profile for Oshkosh and its strategic 

The company's announcement on Nov. 16, 2012, that it plans to repurchase up to 
$300 million of common stock over the next 12 to 18 months does not have an 
immediate effect on our assessment of the company's financial risk profile, 
which we describe as "significant." The company's large cash balances (more 
than $500 million), good credit measures, and anticipated positive free cash 
flow generation provide some capacity for the share repurchase activity.

We believe risks related to potentially more aggressive policy of an 
Icahn-owned or influenced entity have been reduced following the announcement 
that Icahn's tender for the company will not be extended. Icahn and related 
entities disclosed beneficial ownership of about 9.5% of Oshkosh stock in July 
2011, through a combination of shares and call options. Although unsuccessful 
in electing any of his six nominees in January 2012 following a proxy fight, 
we believe the Icahn-led ownership and potentially heightened shareholder 
focus caused some uncertainty as to the strategic direction of the company and 
had the potential to result in a more aggressive financial policy. 

Furthermore, we believe risks of strategic actions that could result in a 
change in our assessment of the company's business risk profile, which we 
currently view as "satisfactory," are also reduced. We expect Oshkosh to 
maintain its leading positions in key segments of the cyclical specialty 
vehicle market--such as being the No. 1 global provider of aerial work 
platforms--and its good product and end-market diversity, which its four 
reporting segments prove. The company's diversified product portfolio is a 
supporting factor in our business risk profile assessment. Our base-case 
expectations include:
     -- A continuation of the slow global economic recovery;
     -- A continued recovery in the access equipment in fiscal 2013 at a 
slower pace than in fiscal 2012;
     -- Lower sales and profits at its defense segment in each of the next 
several years, as Oshkosh transitions away from large domestic contracts;
     -- Fire and emergency results to deteriorate in 2013, given pressures on 
municipal budgets;
     -- Commercial segment revenue and profitability to benefit from an 
improving outlook for residential construction spending; and
     -- Positive free cash flow generation.

Barring any sizable acquisitions or other strategic shift, we expect debt to 
EBITDA to remain close to 2x and funds from operations (FFO) to total debt to 
exceed 30% in 2013. These measures provide some cushion for risks to the 
company's defense segment performance or a general economic slowdown. At the 
current ratings, we expect Oshkosh to maintain total debt to EBITDA of about 
3.5x and FFO to total debt of about 20% to 25%. 

Liquidity is "adequate." Our assessment of the company's liquidity profile 
incorporates the following expectations and assumptions:
     -- We project sources of funds to be more than 1.2x uses over the next 
     -- We expect net sources of funds to remain positive and for there to be 
sufficient headroom under covenants, even in the event that EBITDA declines by 
     -- We believe the company has generally prudent financial risk management 
and sound relationships with banks.

We expect Oshkosh to maintain ample availability under its $525 million 
revolving credit facility due October 2015. It had good cash balances of more 
than $500 million as of Sept. 30, 2012. The company's $650 million senior 
secured term loan amortizes at about 10% annually and matures in October 2015. 
Given Oshkosh's cash flow generation capability, we consider its maturities to 
be manageable.

Recovery analysis 
We rate the company's secured debt 'BBB-' (two notches higher than the 
corporate credit rating) with a recovery rating of '1', indicating our 
expectation of very high (90% to 100%) recovery in a payment default scenario. 
We rate the senior unsecured notes 'BB' with a recovery rating of '4', 
indicating our expectation for an average (30% to 50%) recovery in a payment 
default scenario. (See our recovery report on Oshkosh Corp., published Feb. 8, 
2012, on RatingsDirect.) 

The outlook is stable. We believe Oshkosh will maintain credit measures that 
are consistent with the current ratings. We could lower the ratings if weak 
results or a debt-financed acquisition lead to weaker credit measures--for 
example, if adjusted debt to EBITDA nears 4x and we do not consider near-term 
improvement to be likely. This could occur if revenue declined by more than 
10% and EBITDA margin was less than 4.5% or less in 2013. Conversely, we could 
raise the ratings if we believed the company will likely maintain higher 
credit measures (such as FFO to debt of more than 25%) through the operating 
cycle and we did not expect debt-financed acquisitions or other 
shareholder-friendly actions to result in stretched credit measures.

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Affirmed; Removed From CreditWatch
                                     To                 From
Oshkosh Corp.
 Corporate Credit Rating             BB/Stable/--       BB/Watch Neg/--

Oshkosh Corp.
 Senior Secured                      BBB-               BBB-/Watch Neg
   Recovery Rating                   1                  1
 Senior Unsecured                    BB                 BB/Watch Neg
   Recovery Rating                   4                  4
0 : 0
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