Moody's Moves Outlook on Spectrum Brands (SPB) to Developing ;Ratings Affirmed
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Moody's Investors Service ("Moody's") affirmed the ratings of Spectrum Brands, Inc. (NYSE: SPB), including the B1 Corporate Family Rating (CFR), and changed the outlook to developing from positive. This follows the announcement last week that HRG Group, its majority shareholder, is evaluating strategic alternatives for HRG. HRG Group is in process of selling other assets that it owns, which will soon leave Spectrum as HRG's only investment.
Spectrum Brands, Inc.
Corporate Family Rating at B1;
Probability of Default Rating at B1-PD;
Senior unsecured notes at B2 (LGD 5);
Senior secured credit facility at Ba1 (LGD 2);
Speculative grade liquidity rating at SGL-1
The change to a developing outlook reflects uncertainties as to the exact course of action that HRG will take with regard to Spectrum. The different avenues that HRG could consider include selling the Spectrum business to the public, or to a strategic or financial buyer. HRG could also elect not to sell its investment in Spectrum Brands. The ultimate decision, and hence Spectrum's ultimate capital structure, will not be known for some time.
The B1 Corporate Family Rating reflects Spectrum's significant size with revenue around $5.0 billion, but also the aggressive financial policies of its largest shareholder. Debt/EBITDA is currently near 4.5 times, but Moody's expects it to approach 3.5 times in the next 12 -18 months (absent a change resulting from HRG's strategic review). Ratings benefit from Spectrum's good product diversification with products ranging from personal care items, to pet supplies and household insect control, small appliances, residential locksets and automotive care. The rating is constrained by Spectrum's competition with bigger and better capitalized companies along with the shareholder oriented propensity of its largest shareholder, HRG Group. The rating also reflects the company's general stability in operating performance and Moody's expectation that credit metrics will continue improving in the near to mid-term, despite modest top line organic growth, soft spending for low income consumers and continued macro-economic uncertainty. Spectrum's strong liquidity profile as well as its broad international penetration are important rating factors, although there is concentration in Europe, where there is low growth.
A severe disruption in discretionary consumer spending could result in a downgrade. Key credit metrics which could result in a downgrade include debt/EBITDA sustained over 5.5 times or single digit EBIT margins. Ratings could also be downgraded if Spectrum is acquired and financed in a manner that significantly increases leverage.
Key credit metrics necessary for an upgrade would be debt/EBITDA sustained below 4 times and EBIT margins maintained in the mid-teens. Moody's would need to obtain greater clarity regarding the strategic alternatives being considered by HRG Group before considering an upgrade.
Subscribers can find further details in the Spectrum Brands credit opinion published on Moodys.com.
The principal methodology used in these ratings was "Consumer Durables Industry" published in September 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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