Fitch Rates Whirlpool's Proposed $500MM Sr. Notes Offering 'BBB'
by Business Wire
Fitch Ratings has assigned a 'BBB' rating to Whirlpool Corporation's (NYSE: WHR) proposed offering of $250 million senior unsecured notes due 2023 and $250 million of senior unsecured notes due 2043. These issues will be ranked on a pari passu basis with all other senior unsecured debt. WHR intends to use the proceeds from the notes offerings for general corporate purposes, including the repayment of $500 million of 5.5% senior notes coming due in March 2013. The Rating Outlook is Stable.
A complete list of ratings follows at the end of this press release.
KEY RATING DRIVERS
WHR's ratings and Outlook reflect its position as the world's largest appliance manufacturer, with leading market positions in many regions. WHR's global operating platform, increased manufacturing efficiency and innovation capabilities have enabled it to improve its cost structure, compete more effectively around the world, and adjust to escalating material costs. Risks include intense global competition, volatility of raw material costs, sensitivity to business cycles, and ongoing regulatory issues.
WHR's key credit metrics improved during 2012 relative to 2011 levels and remain appropriate for the rating category. The company's leverage as measured by debt to EBITDA stood at 1.5x at the end of 2012 compared with 1.7x at year-end 2011. Interest coverage improved to 8.3x during 2012 from 7.0x during 2011. Fitch expects these credit metrics to remain relatively stable during fiscal 2013.
OPERATING ENVIRONMENT
The near-term operating outlook for global appliance demand remains relatively stable despite continuing challenges in Europe. In the U.S., Fitch expects appliance demand will increase slightly compared with last year's levels. Fitch currently projects U.S. housing starts will increase 18.6%, while new home sales will improve approximately 22% and existing home sales will grow 7.7% during the year. Home improvement spending in the U.S. is projected to advance 4% in 2013. Internationally, appliance shipments in Latin America and Asia are expected to grow modestly while demand in Europe will likely remain flat to slightly lower compared with 2012 levels.
SOLID LIQUIDITY POSITION
WHR has solid liquidity with cash of $1.17 Billion as of Dec. 31, 2012, and no borrowings under its $1.725 billion revolving credit facility maturing in June 2016. The company also has committed credit facilities in Brazil, which provide up to 880 million Brazilian reais (approximately $431 million as of Dec. 31, 2012) and matures in 2014. There were no borrowings under this facility at year-end 2012.
The company has significant debt maturing over the next four years, with roughly $1.8 billion coming due between 2013 and 2016. While WHR has sufficient cash and revolver availability to repay debt coming due in the next few years, Fitch expects the company will again access the debt markets to refinance some of these upcoming debt maturities.
Fitch expects management will remain disciplined in prioritizing the uses of its cash and cash flow. Funding the business as well as pension contributions will be the primary uses of cash flow. Cash and cash flow will also be deployed to maintain dividends and for debt reduction. Fitch does not expect Whirlpool to undertake meaningful share repurchases in the short term. The company has $350 million remaining under its current share repurchase authorization.
The company generated $65 million of free cash flow (FCF: cash flow from operations less capital expenditures and dividends) during 2012, which was reduced by a $275 million final installment payment to settle a Brazilian collection dispute. Fitch currently expects WHR will generate between $300 million and $400 million of FCF during 2013.
REGULATORY ISSUES
The company has ongoing regulatory issues that could negatively affect the company's financial profile. In particular, there are antitrust investigations relating to WHR's compressor business. Government authorities in Brazil, Europe and the United States and other jurisdictions have entered into agreements with the company and concluded their investigations. In connection with these agreements, the company has incurred roughly $357 million of charges, of which $111 million remain accrued. The company has $73 million of installment payments (plus interest) remaining to be made to government authorities at various times through 2015. The company is also continuing to work toward a resolution of ongoing government investigations in other jurisdictions. Management indicated that it cannot reasonably estimate the amount it may incur and has not accrued charges relating to these ongoing investigations.
RATING SENSITIVITIES
Fitch currently does not expect the company's ratings to change in the next 12 months. However, a Positive Rating Outlook may be considered if the company's credit metrics improve significantly from currently levels, particularly debt to EBITDA levels situating comfortably in the 1x-1.5x range and interest coverage consistently above 10x, and WHR continues to maintain a solid liquidity position.
Negative rating actions may be considered if there is significant deterioration in global demand and the company's operating performance, and as a result leverage levels consistently exceed 2.5x and interest coverage is below 5.5x.
Fitch currently rates WHR as follows:
Whirlpool Corporation
--Long-Term IDR 'BBB';
--Short-Term IDR 'F2';
--Commercial paper 'F2';
--Senior unsecured notes 'BBB';
--Bank revolving credit facility 'BBB' (Whirlpool Corp.,
Whirlpool Europe B.V., Whirlpool Finance B.V. and Whirlpool Canada Holding Company as borrowers).
Maytag Corporation
--Long-Term IDR 'BBB';
--Senior unsecured notes 'BBB'.
Whirlpool Finance B.V.
--Short-Term IDR 'F2';
--Commercial paper (CP) 'F2'.
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);
--'Short-Term Criteria for Non-Financial Corporates' (Aug. 9, 2012);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).
Applicable Criteria and Related Research:
Short-Term Ratings Criteria for Non-Financial Corporates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Liquidity Considerations for Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666
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