Fitch Affirms Ratings on Whirlpool (WHR); Updates on Indesit Acquisition Oct 22, 2014 12:25PM

Fitch Ratings has affirmed Whirlpool Corporation's (NYSE: WHR) ratings, including the company's Issuer Default Rating (IDR), at 'BBB'. The Rating Outlook is Stable.

Fitch placed Whirlpool's ratings on Rating Watch Negative in July 2014 following the company's announcement that it has entered into binding agreements to acquire a majority interest in Indesit Company S.p.A. (Indesit) for approximately EUR758 million or $957 million (based on the exchange rate as of Sept. 30, 2014).

ACQUISITION AGREEMENT

In July 2014, Whirlpool entered into the following binding agreements:

--Share repurchase agreement to acquire Fineldo S.p.A.'s stake in Indesit, representing about 42.7% ownership;
--Share repurchase agreement with certain members of the Merloni family for a 13.2% stake in Indesit;
--Share repurchase agreement with Ms. Claudia Merloni for a 4.4% stake in Indesit.

On July 17, 2014, Whirlpool completed the purchase of 4.4% of Indesit shares from Ms. Claudia Merloni. On Oct. 14, 2014, Whirlpool completed the acquisition of 42.7% of Indesit shares held by Fineldo S.p.A. and 13.2% of Indesit shares held by certain members of the Merloni family.

The company now has 60.4% ownership of Indesit, representing a 66.8% voting stock in the company (including the treasury shares held by Indesit).

Whirlpool will now commence the steps to launch a mandatory tender offer for the remainder of Indesit's outstanding shares, with the intention to delist the company. The tender offer purchase price per share is equal to about $13.89 per share (based on the exchange rate as of Sept. 30, 2014). The company expects to complete the tender offer no later than the first quarter of 2015.

INDESIT ACQUISITION AND RATIONALE

Founded in 1930, Indesit is one of the leading European manufacturers and distributors of major appliances. Indesit has eight industrial sites (in Italy, Poland, the United Kingdom, Russia and Turkey) and approximately 16,000 employees.

During fiscal 2013, Indesit had sales of EUR2.67 billion and EBITDA of approximately EUR178.5 million. The company generated about 56% of revenues from Western Europe, 38% from Eastern Europe and 6% from non-European markets.

The proposed acquisition has good strategic rationale for Whirlpool. Indesit provides Whirlpool with a broader platform to expand its operations in Europe. Currently, about 16% of Whirlpool's revenues are generated from this region. On a pro forma basis (including Indesit), sales from Europe, Middle East and Africa will represent about 29% of Whirlpool's worldwide sales.

Appliance demand in Europe remains relatively weak. Whirlpool's sales in the EMEA region grew 4.8% during the first half of 2014 (1H'14) compared with 1H'13 but the 1H'14 sales are still 15.2% below the 1H'07 sales level. Indesit's revenues for the 1H'14 were 5.1% lower compared with 1H'13 sales, due to lower volumes and the negative effect of foreign currency translation, offset in part by positive price/mix. Fitch currently expects appliance sales in Europe will be flat to slightly higher in 2014 compared with 2013.

IMPACT ON RATINGS

While Fitch views the transaction as strategically positive for Whirlpool, the acquisition will meaningfully increase the company's debt and leverage levels. At the same time, Whirlpool also expects to close the acquisition of a 51% equity stake in Hefei Rongshida Sanyo Electric Co., Ltd. (Hefei) for an aggregate purchase price of RMB3.4 billion (approximately $547 million as of June 30, 2014).

In June 2014 (prior to the announcement of the Indesit acquisition), Fitch affirmed Whirlpool's IDR at 'BBB' and revised the Outlook to Positive from Stable with the expectation that the company's credit metrics continue to improve, including debt to EBITDA situating in the 1.0x-1.5x range and interest coverage consistently above 10x. An upgrade of Whirlpool's ratings to 'BBB+' in the next 12 months is now unlikely.

The rating affirmation and Stable Outlook reflects Fitch's expectation that debt to EBITDA will settle at around 1.5x - 2.0x and interest coverage will be above 9.0x within 12-24 months following the completion of the acquisitions of Indesit and Hefei.

Fitch now estimates that the company's debt to EBITDA will approximate 2.0x and funds from operations (FFO) adjusted leverage will be 3.5x by year-end 2015. Interest coverage is projected to be approximately 10.0x at the conclusion of 2015.

Fitch expects the company will reduce leverage in 2016, with debt to EBITDA projected to be about 1.5x, FFO adjusted leverage situating at 3.0x and interest coverage above 10.0x at the end of 2016.

RATING SENSITIVITIES

While Fitch does not expect a global economic downturn during the next 12 months, the company's risk profile is somewhat heightened by the significant debt incurred for the acquisition of Indesit as well as the pending acquisition of a 51% equity stake in Hefei. Negative rating actions may be considered if there is significant deterioration in global demand and consequently the company's operating performance, Whirlpool undertakes shareholder friendly activities funded by debt, and/or there is material judgment against the company related to existing regulatory proceedings, leading to leverage levels consistently exceeding 2.5x and interest coverage falling below 5.5x.

While unlikely in the next 12 months, positive rating actions may be considered if the company's financial performance is meaningfully better than Fitch's base case forecast, particularly debt-to-EBITDA consistently situating within a range of 1.0x - 1.5x and interest coverage sustaining above 10x, as Whirlpool continues to maintain a solid liquidity position.

Fitch has affirms the following ratings with a Stable Outlook:

Whirlpool Corporation
--Long-term IDR at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2';
--Senior unsecured notes at 'BBB';
--Bank revolving credit facility at 'BBB'.

Maytag Corporation
--Long-term IDR at 'BBB';
--Senior unsecured notes at 'BBB'.

Whirlpool Finance B.V.
--Short-term IDR at 'F2';
--Commercial paper (CP) at 'F2'.


S&P Cuts Ocwen Financial (OCN) to 'B', Outlook Negative Oct 22, 2014 12:01PM

Standard & Poor's Ratings Services lowered its long-term issuer credit rating to 'B' from 'B+' on OCWEN Financial Corp. (NYSE: OCN). The outlook is negative. In addition, we lowered our ratings to 'B' from 'B+' on OCWEN's senior secured debt and to 'B-' from 'B' on its senior unsecured debt.

"The rating action reflects our view of increasing regulatory scrutiny over the company's servicing practices and today's announcement that the company erroneously dated correspondence to some borrowers who were facing foreclosure," said Standard & Poor's credit analyst Stephen Lynch. "We believe the culmination of events and ongoing investigations will limit the company's ability to acquire servicing assets," Mr. Lynch added.


S&P Affirms Raings on AbbVie (ABBV); Removes from CreditWatch Negative (SHPG) Oct 21, 2014 11:42AM

Standard & Poor's Ratings Services affirmed all of its ratings on AbbVie Inc. (NYSE: ABBV), including the 'A' corporate credit rating. We removed the corporate credit rating and the unsecured rating from CreditWatch with negative implications, where we placed them on July 18, 2014. The outlook is stable.

The removal from CreditWatch and stable outlook reflect the absence of the leveraged acquisition of Shire plc (Nasdaq: SHPG) and our belief that AbbVie will maintain a conservative financial policy with leverage sustained below 1.5x.

"AbbVie's financial risk profile reflects leverage of 1.2x and funds from operations (FFO) to total debt of 78% as of June 30, 2014. Absent Shire, we believe AbbVie will maintain a conservative financial policy and keep financial metrics consistent with "minimal" financial risk (leverage less than 1.5x)," said credit analyst Michael Berrian. "Although management announced a 16.7% increase in its dividend, and the Board authorized a $5 billion share repurchase program, we believe these actions are consistent with AbbVie's financial policy and do not impair financial risk. Moreover, it signals a more conservative position from the aggressiveness exhibited by its attempted Shire acquisition. We continue to view management and governance as fair, given the absence of tenure as a stand-alone company."

Our stable outlook reflects AbbVie's steady operating performance and good cash flows, offset by our belief that a commitment to shareholder returns will remain elevated.

Downside scenario

We could lower the rating if the company's leverage increases to more than 2x on a sustained basis. This would most likely occur through the pursuit of very aggressive shareholder returns, with greater than anticipated debt-financed acquisitions or share repurchases. Although less likely, this would occur because of significant challenges to Humira's market position.

Upside scenario

We could consider an upgrade once the company is less dependent on Humira and/or our perception of management and governance becomes stronger. This would prompt reconsideration of the management and governance and comparable rating analysis modifiers.


S&P Affirms Ratings on Tesoro Logistics L.P (TLLP); Rates Proposed Notes Offering at 'BB' Oct 20, 2014 04:49PM

Standard & Poor's Ratings Services said it affirmed its 'BB' corporate credit and senior unsecured debt ratings on San Antonio-based master limited partnership Tesoro Logistics L.P. (NYSE: TLLP). The outlook is stable. The stand-alone credit profile (SACP) is also 'bb' and we view the partnership as moderately strategic to its general partner, Tesoro Corp.

At the same time, we assigned our 'BB' issue-level rating to the partnership's proposed senior unsecured notes due 2019 and 2022. The partnership will use net proceeds from the notes to partly fund the purchase of QEPFS, fully repay outstanding amounts under the partnership's revolving credit facility, and for general partnership purposes. The recovery rating on the partnership's senior unsecured debt is '4', indicating our expectations of average (30% to 50%) recovery if a payment default occurs. Our recovery expectations are in the upper half of the 30% to 50% range.

"The rating action reflects our view that the transaction is neutral for TLLP's consolidated credit profile," said Standard & Poor's credit analyst Michael Grande.

The transaction will increase the partnership's size and scale, more than doubling EBITDA in 2015 to about $650 million, as well as provide additional asset, customer, and geographic diversity. These benefits are only partly offset by the slightly higher initial pro forma leverage of about 4.3x in 2015 and exposure to some commodity risk and volume risk.

The stable outlook reflects our expectation that TLLP will successfully integrate QEPFS' gathering, processing, and fractionation business, while largely maintaining stable, fee-based cash flow and financial leverage of 4x or less as it continues to pursue growth opportunities.

We could lower our ratings on TLLP if the partnership materially increases leverage such that debt to EBITDA exceeds 4.5x on a sustained basis, or if EBITDA becomes more volatile due to the partnership assuming a greater amount of volume or commodity price risk.

While unlikely in the near term, we could raise ratings on TLLP if the partnership achieves much greater scale, geographic, and asset diversity, while maintaining stable, fee-based cash flows and leverage of 4x or less.


S&P Raises Outlook on QEP Resources (QEP) to Stable; Ratings Affirmed at 'BB+' Oct 20, 2014 03:09PM

Standard & Poor's Ratings Services said it revised its rating outlook on Denver-based QEP Resources (NYSE: QEP) to stable from negative and affirmed all of its ratings, including the 'BB+' corporate credit rating, on the company.

The rating action reflects the expected improvement in QEP's credit protection measures due to the use of a portion of proceeds from the sale of its midstream business to fund debt reduction and capital spending. The ratings on QEP reflect our view of the company's "fair" business risk and "intermediate" financial risk.

"We think QEP's credit protection measures will be adequate for the ratings over the next 12 months as the company uses asset sale proceeds to repay debt and fund capital spending," said Standard & Poor's credit analyst Ben Tsocanos.

We would consider a downgrade if we expected the company's FFO to debt to remain below 45% and debt to EBITDA to remain above 2x. This could occur if QEP increases capital spending without achieving significant production growth, especially in the context of falling commodity prices. This could also occur if the company buys back significantly more stock than we anticipate.

We could consider an upgrade if QEP increases its oil and gas reserves and production to a scale commensurate with higher-rated peers without a significant deterioration in its operating costs or capital structure.


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