Fitch Raises Delta Air Lines' (DAL) IDR to 'BB'; Notes Recent Improvement in Performance, Combating Cost Inflation Oct 24, 2014 12:51PM

Fitch has upgraded Delta Air Lines' (NYSE: DAL) IDR to 'BB' from 'BB-'. Fitch has also upgraded Delta's Seattle project bonds to 'BB' from 'BB-', and affirmed the Delta 2007-1 class A pass-through trust certificates at 'BBB+'. The Rating Outlook is Positive.

The upgrade reflects significant improvements to Delta's balance sheet, continued solid operating performance, better than expected free cash flow (FCF), and successful efforts to combat operating cost inflation. The ratings are also supported by underlying improvements in the airline industry including consolidation among the legacy carriers and capacity constraints, which have led to an improved risk profile and better profitability for the industry as a whole. Fitch upgraded Delta's ratings to 'BB-'/Positive Outlook in February of this year citing the possibility for further upgrades contingent upon further leverage reduction and sustained or improved operating margins. Since that time Delta has met or exceeded those expectations.

The Positive Outlook reflects Fitch's view that Delta's credit profile will continue to improve over the intermediate term as the company continues to list debt reduction and addressing its underfunded pension plan as key priorities. Several of Delta's key credit metrics, including adjusted leverage and profitability, could potentially support higher ratings. Future upgrades are possible as Fitch's confidence grows in Delta's ability to maintain higher ratings through the inevitable cyclical and secular stresses inherent to the industry.

Delta's underfunded pension plan remains a key overhang on the ratings. The plans were underfunded by $10.1 billion at year-end 2013, leading to sizeable required annual cash contributions. These risks are partially mitigated by Delta's improving cash flow profile, which enables the company to fund its pension requirements while still generating positive FCF, and by Delta's efforts to make pension contributions over and above the required minimums. The international economic environment is also a concern with recent reports of softness in the Eurozone, China, and Brazil weighing on future demand for international travel. Other rating concerns primarily reflect risks inherent to the airline industry. Cyclicality, exposure to exogenous shocks (i.e. war, terrorism, etc.), capital intensity, and sensitivity to global oil prices remain constraining factors on the ratings.

KEY RATING DRIVERS

Improving Credit Metrics: Credit metrics at Delta have continued to improve since Fitch upgraded Delta's rating to 'BB-' in March of this year. Fitch expects further improvement going forward supported by a solid domestic demand environment and by Delta's commitment to future debt reduction. Fitch calculates Delta's adjusted debt/EBITDAR at 2.5x as of Sept. 30, 2014, which is down from 3.2x at year-end 2013 and more than 9x at year-end 2009. Adjusted leverage is now notably lower than all other large North American competitors with the exception of Alaska Air Group, which Fitch rates 'BBB-'. Fitch believes that Delta's improved credit profile puts it in a much stronger position to weather future market downturns. Delta intends to further reduce debt in the near term, setting a net adjusted debt target of $5 billion to be reached by year-end 2016. Fitch views this goal as achievable given the company's capacity to produce FCF, and its track record of bringing down debt since the previous recession.

Managing Costs: The ratings upgrade is supported by Delta's successful efforts to manage its unit costs. Cost per available seat mile (CASM) ex-fuel was flat in the first three quarters of 2014 despite some pressure from salaries and related costs. Fitch expects non-fuel unit cost growth to remain modest in the low single-digit range through 2015. Delta's ongoing re-fleeting effort, aimed at replacing smaller inefficient regional jets with larger 76-seat regional jets (RJs) and 717s is expected to provide some unit cost benefit. Delta is also able to avoid heavy maintenance checks on the small RJs that it intends to retire in coming years. Fitch expects Delta's well-managed unit cost growth along with expectations for modest revenue per available seat mile (RASM) increases to create room for further operating margin expansion in 2015. Margin expansion could be material if fuel costs remain at the lower levels seen in recent weeks.

Fitch notes that the collective bargaining agreement with Delta's pilots becomes amendable in December 2015. Unit costs could face some pressure beyond 2015 depending on the outcome of those negotiations.

Strong FCF and Financial Flexibility: Delta's FCF generation has outpaced Fitch's expectations over the past year. Delta's healthy operating profits and manageable upcoming capex are expected to allow the company to produce sizeable FCFs in the $3 billion range in 2014 and 2015. Delta has now produced positive cash flow in each of the past five years, with cumulative FCF totaling more than $7.3 billion over that time period. The capacity to consistently produce positive FCF, particularly in the sustained high fuel-price environment of recent years, was a key consideration in the ratings upgrade.

Total liquidity as of Sept. 30, 2014 was equal to 16% of LTM revenue. Liquidity consists of $2.5 billion of cash & equivalents, $1.9 billion of short-term investments, and $2 billion of revolver availability. While some of Delta's airline peers have a higher liquidity balance on a cash/revenue basis, Fitch considers DAL's current liquidity balance to be more than adequate to fund near-term requirements, particularly since the company is consistently generating solid cash flow. Fitch's base case forecasts that DAL will generate cumulative cash flow from operations of more than $17 billion between 2014-2016, greatly exceeding anticipated capex, dividends, and debt maturities.

Manageable Cash Obligations: Fitch expects capital expenditures to total between $2 billion-$2.5 billion annually for the next several years, the majority of which will consist of new aircraft deliveries as Delta takes 737-900ERs, A330-300s starting in 2015 and A321s starting in 2016. Debt maturities range from $1 billion to $1.4 billion annually over the next three years. These obligations are manageable in light of Delta' expected cash generation.

Fitch also expects Delta to manage its dividend and share repurchase programs prudently. Delta announced a 50% dividend increase earlier in 2014, increasing the payout to roughly $300 million per year. Delta's board also authorized a $2 billion share repurchase program to be completed by year-end 2016. This comes after the company's May 2013 announcement that it would complete a $500 million repurchase program by the end of 2015. The program was completed nearly two years ahead of schedule, prompting a much larger repurchase allowance. Fitch does not consider shareholder returns at these levels to be constraints on the ratings given Delta's ability to generate cash. However shareholder-friendly activities could present a credit concern in the future if they were pursued at the expense of a healthy balance sheet.

Sizeable Pension Obligations: Delta's underfunded pension plans remain a concern. As of year-end 2013 Delta's defined benefit plans were underfunded by $10.1 billion. Fitch expects that figure to increase at year-end 2014 due to the prevailing interest rate environment. Risks posed by the underfunded plans are partially offset by Delta's efforts to make contributions over and above minimum required funding amounts and by the company's steady FCF generation. Delta contributed $250 million above the minimum required amount in the first half of 2014 bringing the total contribution to $905 million. The company anticipates making similar annual contributions going forward. Nevertheless, pensions are expected to remain a sizeable liability for the foreseeable future.

Strong Operating Results: Operating margins continue to expand, reflecting consistent RASM growth and managed cost pressures. Delta has maintained above-industry-average PRASM growth since fully completing its integration of Northwest with results driven by its formidable route network and an improving share of corporate travel. Fitch believes that operating margins have room for further expansion in coming years as Delta works to revamp its regional jet fleet and its operations in New York continue to mature. Fitch also expects continued modest macroeconomic growth in 2014 and 2015, positive trends in travel demand, and capacity discipline across the industry, which will foster a healthy operating environment. Business travel trends are particularly robust, which is important given Delta's increased focus on growing its share of lucrative corporate travelers.

Delta 2007-1 Pass Through Trust Certificates:
In its review of Delta's ratings, Fitch has also affirmed the ratings for the company's 2007-1 series class A certificates at 'BBB+'. Fitch's senior tranche EETC ratings are primarily based on a top-down analysis of the collateral, and were not affected by the upgrade to Delta's IDR. The ratings are supported by the structure's ability to withstand Fitch's 'BBB' level stress test while maintaining a loan-to-value (LTV) below 100%. This suggests that senior tranche holders would receive full recovery prior to a default, even in a harsh stress scenario. The ratings are also supported by low base LTVs through the life of the transaction, a moderate-to-high affirmation factor, and Delta's improving credit profile.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to a positive rating action include:

--EBITDAR margins approaching or exceeding 20% (at Sept. 30, 2014: 19.3%);
--Sustained FCF margins of 5% of revenue or higher;
--Continued progress towards reducing underfunded pension balance;
--Sustained funds from operations fixed-charge coverage ratio above 4x (at June 30, 2014: 3.65x).

A negative rating action is not anticipated at this time. However, future actions that may individually or collectively lead to a negative rating action include:

--Increased operating costs, either fuel or non-fuel related, that are not adequately matched by higher ticket prices leading to reduced operating margins;
--A substantial increase in dividends or stock repurchases that comes at the expense of a healthy balance sheet;
--An unexpected and protracted drop in the demand for air travel.

Fitch has taken the following rating actions:

Delta Air Lines, Inc
--IDR upgraded to 'BB' from 'BB-';
--$1.2 billion senior secured revolving credit facility due 2016 affirmed at 'BB+';
--$1.4 billion senior secured term loan due 2017 affirmed at 'BB+'.
--$450 million senior secured revolving credit facility due 2017 affirmed at 'BB+';
--$1.1 billion senior secured term loan B-1 due 2018 affirmed at 'BB+';
--$400 million senior secured term loan B-2 due 2016 affirmed at 'BB+'.

Delta Air Lines 2007-1 Pass-Through Trust:
--DAL 2007-1 class A certificates affirmed at 'BBB+'.

Industrial Development Corporation (IDC) of the Port of Seattle special facilities revenue refunding bonds, series 2012 (Delta Air Lines, Inc. Project):
--$66 million due April 1, 2030 upgraded to 'BB' from 'BB- '.


S&P Lowers Outlook on Goodrich Petroleum (GDP) to Negative Oct 24, 2014 11:32AM

Standard & Poor's Ratings Services today revised the rating outlook on Goodrich Petroleum Corp. (NYSE: GDP) to negative from stable. We also affirmed our 'B-' corporate credit rating on Goodrich and our 'CCC' issue-level rating on the company's senior unsecured debt. The recovery rating on this debt is '6', which indicates our expectation of negligible (0% to 10%) recovery to creditors if a default occurs. In addition, we affirmed our 'CCC-' issue-level rating on Goodrich's perpetual preferred stock.

We expect Goodrich's liquidity to deteriorate next year absent potential asset sales, a joint-venture arrangement, or a meaningful reduction in capital spending. Based on our view that the company will continue to pursue its strategy of delineating its large acreage position in the emerging Tuscaloosa Marine Shale (TMS) oil play, and that it will spend at least as much in the play next year as it plans to spend in 2014 ($200 million to $250 million), we believe the company will have to take steps to raise external capital over the next six months to preserve liquidity. Goodrich has indicated that it is evaluating noncore asset sales and it continues to pursue a joint-venture partner for the TMS; however, the recent drop in crude oil prices could slow the process. Alternatively, Goodrich could reduce its capital spending levels in 2015, but would risk losing some of its TMS acreage. "We have revised the rating outlook on Goodrich to negative to reflect a potential downgrade if the company does not take steps to improve liquidity, such as executing on asset sales, finding a joint-venture partner, or significantly reducing capital spending, over the next six months," said Standard & Poor's credit analyst Carin Dehne-Kiley.

We view Goodrich's business risk profile as "vulnerable" given its small size, limited geographic diversity, and meaningful exposure to weak natural gas prices, although the company has been shifting to oil production over the past two years. At year-end 2013, Goodrich's proven reserve base was 452 billion cubic feet equivalent, 73% of which was natural gas and 39% of which was developed. The company has high exposure to dry gas, the pricing of which we expect to remain well below crude oil on an energy equivalent basis. Nearly 80% of the company's reserves are associated with dry gas plays in the Haynesville Shale and Cotton Valley sands (Louisiana/East Texas), with about 15% in the oil-focused Eagle Ford Shale (South Texas) and 5% in the emerging TMS (Mississippi/Louisiana).

The negative outlook reflects a potential downgrade if the company does not take steps to improve liquidity, such as executing on asset sales or reducing capital spending, over the next six months.

We could revise the outlook to stable if we expected sources of liquidity to exceed uses over the next 12 months, which would most likely occur if Goodrich can raise external capital through asset sales or a joint-venture, or by meaningfully reducing capital spending.


Fitch Upgrades Devon Energy's (DVN) IDR, Unsecured Ratings to 'BBB+', Outlook Stable Oct 23, 2014 12:27PM

Fitch Ratings has upgraded Devon Energy Corporation's (Devon) (NYSE DVN) long-term Issuer Default Rating (IDR) and senior unsecured debt ratings to 'BBB+' from 'BBB'. Additionally, Fitch has affirmed the company's short-term IDR and commercial paper ratings at 'F2'. The Rating Outlook for Devon is Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS
The upgrade is driven by debt reduction that has occurred since the acquisition of GeoSouthern Energy Corporation in February of this year. Effectively, Devon has quickly returned credit metrics to previous levels prior to the primarily debt financed acquisition of GeoSouthern. Net proceeds from assets sales in the second and third quarter totaled approximately $4.5 billion after tax and have been used to reduce debt balances.

Devon's ratings reflect its large proven reserve base in North America, sizeable production levels balanced between liquids and natural gas and conservative financial policies. Fitch estimates that proven reserves currently total approximately 2.8 billion barrel of oil equivalent (boe) over multiple basins with over 60% of these reserves developed. Fitch expects 2015 production to average somewhere between 660,000 and 700,000 boe per day with 60% of the production being liquids. Balance sheet debt - post-redemption of $1.9 billion in senior notes due 2016 & 2017 - should be approximately $10 billion inclusive of approximately $1.7 billion in EnLink debt that is non-recourse to Devon. The redemption of Devon's senior notes due 2016 and 2017 is expected to occur on Nov. 13. After this occurs, Fitch estimated gross E&P debt to proven reserves and daily production should approximate $3/boe and $13,000 per boe per day, respectively.

With the acquisition of liquids focused GeoSouthern and divestures of certain natural gas assets, Devon's portfolio re-balancing is complete. The company's production mix the fourth quarter is estimated to be approximately 37% oil, 20% natural gas liquids (NGLs) and 43% natural gas. Oil production will likely grow more than 20% in 2015 primarily a result of operations in the Eagle Ford, Permian Basin and in Canada (Jackfish 3). Devon has hedged a majority of its oil production for 2015 at above current market prices. Natural gas production is primarily focused in the Barnett Shale which still accounts for approximately a third of the firm's overall production from a geographic prospective.

Free Cash Flow (FCF) & Expectations
Fitch believes that Devon will experience favorable cash flow trends given its liquids focused production mix, growth targets and completion of Jackfish 3. Further, Fitch expects Devon to balance its capital spending and dividends with internally generated cash flow and be FCF neutral to positive on a go forward basis. Consolidated debt/EBITDA is expected to be less than 1.5x in 2015.

LIQUIDITY
Liquidity is provided primarily by cash flow from operations, the company's undrawn $3 billion unsecured revolver due 2018 and its commercial paper program. Additionally, Fitch estimates Devon possesses approximately $1.7 billion in cash that is held outside the U.S. The company's revolver has only one material covenant which is a 65% maximum funded debt to capitalization. As of June 30, 2014, Devon's funded debt to capitalization was 23.4%. After the redemption of the senior notes on Nov. 13, maturities are $500 million of floating rate notes (FRNs) due December 2015, $350 million of FRNs due December 2016, $125 million in senior notes due July 2018 and $750 in senior notes million due December 2018.

RATING SENSITIVITIES:

Negative: Future developments that could, individually or collectively, lead to negative rating action include:

--Leveraging acquisition;
--Material and sustained negative free cash flow that results in higher leverage;
--Levered share repurchases or major dividend increases;
--Material disappointments in reserve replacement or production levels.
Positive: Future developments that could, individually or collectively, lead to positive rating actions include:

--E&P debt/PD below $4.50 and debt/production below 12,000 boe/d on a sustained basis;
--Consistent strong reserve replacement with competitive finding and development costs;
--Demonstrating positive or neutral free cash flow after capex and dividends on a sustained basis.

Fitch has upgraded Devon as follows:

Devon Energy Corporation
--Long-term IDR to 'BBB+' from 'BBB';
--Senior unsecured notes to 'BBB+' from 'BBB;
--Senior unsecured credit facility to 'BBB+' from 'BBB.

Devon Financing Corporation U.L.C.
--Long-term IDR to 'BBB+' from 'BBB' and withdrawn;
--Senior unsecured notes to 'BBB+' from 'BBB'.

Ocean Energy
--Long-term IDR to 'BBB 'from 'BBB-';
--Senior unsecured notes to 'BBB' from 'BBB-'.

Fitch has affirmed the following ratings:

Devon Energy Corporation
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

The Rating Outlooks for Devon and Ocean are Stable.


Moody's Affirms Ratings on Lockheed Martin (LMT); Raises Outlook to Positive Oct 23, 2014 11:23AM

Moody's Investors Service affirmed its ratings for Lockheed Martin (NYSE: LMT) and subsidiaries ("Lockheed Martin"), including the Baa1 senior unsecured and P-2 short-term debt ratings, and revised the rating outlook to Positive from Stable.

The change in the rating outlook to a positive bias reflects Moody's expectation that Lockheed Martin's credit profile will improve over the forward rating horizon, as the company benefits from (i) a comparatively protected position as the prime contractor on one of the few growing defense programs—the F-35 Lightning II—and Moody's view that the risk profile of that program has reduced, and (ii) a growing amount of cash flow likely over time related to the recovery of previously funded pension expenses from its principal government customer, another key differentiating factor in the broader context of its immediate peer group. Combined with anticipated strong execution as recently demonstrated on major programs and a measured approach to shareholder return initiatives, the prospect of an upgrade in the company's long-term senior unsecured debt rating to A3 being warranted over the coming 12-to-18 months is subsequently deemed to be elevated, as reflected in the rating outlook revision to Positive.

"As the largest US defense contractor, Lockheed Martin's leadership position across multiple mission area categories—including air, space, sea, and missile defense—continues to mitigate budget-driven earnings volatility which has been more notably evidenced by other contractors in the defense industry sector" said Russell Solomon, Moody's Senior Vice President and lead analyst for the company. "The company's continued strength in execution on key programs coupled with our expectation of now only modestly deteriorating defense end market fundamentals and increasing recovery of previously funded pension contributions over the forward rating horizon lend support to the positive outlook," Solomon added.

SUMMARY RATING RATIONALE

Lockheed Martin's Baa1 rating is broadly supported by: 1) the company's significant scale as the world's largest defense contractor, with about $45 billion of revenue this year, and as the leading IT provider for the US government; 2) the breadth and depth of its operations and strong market positions as the incumbent on a number of critical defense programs; 3) considerable barriers to entry given the high-technology nature of the industry and the classified status of many operations and programs; and 4) the benefits of good visibility afforded by the largest order book amongst defense contractor peers (nearly $77 billion as of September 2014). We expect modestly declining sales will stabilize in 2015 at about $44 billion and grow by about 3%-5% in 2016, as near-term revenues are likely to remain somewhat pressured by persistent budgetary constraints for Lockheed Martin's principal customer, the US Department of Defense (DoD). Even so, we expect this pressure will continue to be less severe for the company than for the broader defense market given its prime position on the sizeable and growing F-35 program. The risk profile on the F-35 program has reduced considerably in our view. While it remains exposed to further quantity reductions and affordability initiatives, the program now seems reasonably assured to continue, and at accelerating unit delivery levels, with renewed interest from global allies as cost reduction initiatives are increasingly scrutinized. Notably, even as annual revenues have declined nearly 4% from the 2012 peak, Lockheed Martin has generally maintained reported operating margins in excess of 9%. As a result, even with US defense spending under continued pressure we expect Lockheed Martin will comfortably generate at least $3 billion of free cash flow annually over the next several years, affording it the opportunity to both further strengthen the financial profile and still maintain sufficient flexibility to meet its shareholder return objectives.

Pension obligations remain substantial and were about $9.8 billion as of the 2014 mid-year pension remeasurement, notwithstanding some meaningful contributions exceeding minimum requisite funding levels, significant relief in the underfunded status stemming from rising interest (and ensuing discount) rates in 2013, and the company's second quarter announcement that it would freeze its salaried defined benefit pension plan in two stages (beginning January 2016 and concluding January 2020). Adjustments for the debt-like pension program shortfalls continue to adversely affect Lockheed Martin's debt metrics at more meaningful levels than for similarly rated peers, with pension adjustments representing more than one-half of the roughly $17 billion in Moody's adjusted debt for the company. This proportion is still much improved from about 65% at the end of 2012. And while rapidly growing pension expense recoveries from Lockheed Martin's principal government customer (the US DoD) related to historical outlays are expected to represent a meaningful cash flow differentiator for the company over the next few years, we remain watchful that higher costs embedded in the company's overhead rates may adversely affect its ability to price competitively on future bid activities.

RATING OUTLOOK

The rating outlook is positive, incorporating expectations that Lockheed Martin will sustain a solid financial profile over the intermediate term and execute profitably on its long-lived programs such that leverage continues to improve and trend towards 2.0x, all while a strong liquidity profile is maintained. While pressure on defense budgets is expected to persist, Lockheed Martin appears to be better positioned than most companies in the industry to preserve its top line and maintain a strong earnings profile as the leading global defense contractor with the prime position on the largest and most important contract.

WHAT COULD CHANGE THE RATING - UP

Sustained operating margins that exceed 10% coupled with evidence of continued deleveraging (trending towards 2.0x Debt-to-EBITDA) and broad-based improvement in other key credit metrics, concurrent with maintenance of a strong liquidity profile, could warrant consideration for a potential upward rating action. Further reduction (either organically or inorganically) of the large underfunded pension obligation continues to be a primary opportunity to strengthen the balance sheet in support of a prospectively higher rating.

WHAT COULD CHANGE THE RATING - DOWN

The outlook and/or rating could be pressured if execution problems (particularly with the F-35 program) lead to material contract cancellations and profitability falls more than anticipated, declining leverage trends reverse (approaching 3.0x Debt-to-EBITDA) and/or fiscal policies become more aggressive (including shareholder remuneration in excess of free cash flow) and the company's liquidity profile worsens.

The principal methodology used in these ratings was the Global Aerospace and Defense Industry Methodology published in April 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.


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'.


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Oct 7, 2014 03:29PM Moody's Cuts Crown Holdings (CCK) to 'Ba2'; Concludes Review Following Move to Acquire EMPAQUE
Oct 7, 2014 03:06PM UPDATE: S&P Cuts Cliffs Natural Resources (CLF) to Junk
Oct 7, 2014 03:06PM UPDATE: S&P Cuts Cliffs Natural Resources (CLF) to Junk
Oct 7, 2014 11:37AM Actavis' (ACT) Move to Acquire Durata (DRTX) is Strategically Sound; Signals Appetite for More M&A - Moody's
Oct 7, 2014 09:46AM S&P Says JCPenney (JCP), Sears (SHLD) Paths to Recovery are Diverging
Oct 7, 2014 08:20AM Covidien plc (COV) Remains on CreditWatch Positive at S&P (MDT)
Oct 6, 2014 03:32PM Campbell Soup (CPB) Ratings Cut to 'A3' by Moody's
Oct 6, 2014 02:36PM S&P Lifts Outlook on Accuride (ACW) to Stable
Oct 6, 2014 02:23PM Carefusion (CFN) Ratings Affirmed at Moody's Following Becton Dickinson (BDX) Deal
Oct 6, 2014 12:22PM S&P Places Becton Dickinson (BDX) on CreditWatch Negative Following Plans to Acquire CareFusion (CFN)
Oct 6, 2014 11:58AM Och-Ziff Capital's (OZM) IDR Rated 'BBB-' by Fitch; Outlook Stable
Oct 6, 2014 11:04AM Hewlett-Packard (HPQ) Placed on CreditWatch Negative by S&P
Oct 3, 2014 03:43PM Salix Pharma's (SLXP) Termination of Cosmo Tech Merger is Credit-Positive Development - Moody's
Oct 3, 2014 03:28PM Quicksilver Resources (KWK) Cut to 'CCC-' by S&P
Oct 3, 2014 01:58PM S&P Places IAMGOLD Corp. (IAG) on CreditWatch Negative
Oct 3, 2014 11:53AM S&P Lowers Outlook on Murphy Oil (MUR) to Negative; Ramp Up in Production Needed
Oct 3, 2014 09:35AM S&P Keeps Medtronic (MDT) on CreditWatch Negative on Planning Covidien (COV) Deal
Oct 2, 2014 02:49PM S&P Assigns 'BBB-' Issuer Rating to Hercules Technology Growth Capital (HTGC)
Oct 2, 2014 12:38PM Southwest Gas (SWX) Ratings Lowered to 'BBB+' by S&P
Oct 2, 2014 12:05PM RCS Capital (RCAP) Ratings Affirmed by Moody's
Oct 1, 2014 05:18PM Increase in Mesh Litigation Reserves is Credit Negative for Endo Int'l (ENDP) - Moody's
Oct 1, 2014 12:25PM U.S. Silica (SLCA) CFR Raised to 'Ba2' by Moody's
Oct 1, 2014 11:37AM Enterprise Products Partners (EPD) Ratings Affirmed by S&P
Sep 30, 2014 03:16PM Moody's Affirms Unsecured Ratings of Energizer Holdings (ENR) Following Review for Downgrade
Sep 30, 2014 03:10PM Freeport-McMoran (FCX) Outlook Raised to Stable by S&P; Sees Steady Operating Performance Over Next 24 Months
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