Clorox's (CLX) Shelf Registration Assigned 'BBB+' Rating by S&P

Standard & Poor's Ratings Services said that it assigned its preliminary 'BBB+' senior unsecured debt rating to Oakland, Calif.-based Clorox Co.'s (NYSE: CLX) Rule 415 shelf registration statement filed Dec. 4, 2014. We also assigned our 'BBB+' issue-level rating to the company's proposed $500 million 10-year senior unsecured fixed-rate notes, which will be drawn from the shelf. We expect the company to use the net proceeds from the offering to repay a portion of its $575 million senior unsecured notes due January 2015.

All of our existing ratings on Clorox, including our 'BBB+/A-2' corporate credit rating, remain unchanged, as does our stable rating outlook. We estimate total debt outstanding pro forma for the proposed issuance and January 2015 note repayment is about $2.15 billion.

Our business risk assessment on Clorox recognizes its relatively diverse portfolio of products that hold solid market shares in mid-sized categories, fairly consistent demand for its cleaning, household, and lifestyle products, and a culture focused on product innovation. Clorox faces generic/private label competition for several of its core products including bleach, charcoal, and trash bags, is susceptible to input cost volatility, and relative to other large consumer product companies has low geographic diversity considering 80% of sales are in the U.S. In our opinion, Clorox has demonstrated the ability to restore growth and profitability following commodity-driven price increases that initially resulted in volume erosion. We expect this to continue, and believe this is indicative of the company's innovation and relatively good brand equity, even for products that face price competition from private label competitors.

Our financial risk assessment on Clorox reflects our forecast that credit ratios will remain close to current levels, including leverage below 2.5x and funds from operations to total debt around 30%. We assume the company will maintain its relatively conservative financial policy, which includes our expectation that all free cash flow will be used for shareholder payments and acquisitions, and any debt-financed transactions will be moderate. However, given increased acquisition activity across the sector, Clorox may become more acquisitive over the next 24 months.

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