S&P Raises Manitowoc (MTW) to 'BB-', Outlook Stable;Cites Improving Performance, Operating Metrics
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Standard & Poor's Ratings Services said today that it raised its corporate credit rating on Wisconsin-based crane and food service equipment manufacturer Manitowoc Co. (NYSE: MTW) Inc. to 'BB-' from 'B+'. The outlook is stable.
At the same time we raised our issue-level rating on the company's $1.05 billion senior secured credit facilities to 'BB+' from 'BB'. The recovery rating remains '1', indicating our expectation of very high (90%-100%) recovery in a payment default scenario. We also raised our issue-level rating on the company's $900 million senior unsecured notes (which consists $600 million senior notes due 2020 and $300 million senior notes due 2022) to 'BB-' from 'B+' and revised the recovery rating to '3' from '4' on improved recovery prospects after the company's recent full redemption of its $400 million 9.5% senior notes due 2018. The '3' recovery rating indicates our expectation of meaningful (50%-70%) recovery in a payment default scenario. We withdrew the issue-level and recovery ratings on the recently redeemed notes.
"The upgrades reflect Manitowoc's improved operating performance and credit metrics in recent quarters as a result of the gradual recovery in its crane end markets, the modest improvements in its food service segment, and the greater-than-expected debt reduction," said Standard & Poor's credit analyst Carol Hom. We believe that as the global economy continues to strengthen, the company's operating prospects should continue to improve and its credit metrics will remain appropriate for the rating over the next 12-18 months. We also believe that the company will continue to pay down debt with a portion of the free cash flow it generates. Manitowoc's cash balance and ample availability on its revolver, as well as our expectation for positive free cash flow generation for the year, should continue to support its adequate liquidity.
The revision of the recovery rating on company's $900 million senior notes reflects our expectation of improved recovery prospects for the unsecured debt following the recent full redemption of the $400 million senior unsecured notes due 2018.
The rating reflects Manitowoc's "fair" business risk and "aggressive" financial risk profile assessments. Our "fair" business risk profile stems from Manitowoc's participation in the cyclical construction market partly offset by the more stable food service business. We believe the company will maintain its position as one of the top two crane manufacturers serving the construction market and one of the top two manufacturers by market share of major products in the more stable food service markets. The company should continue to maintain good customer, product, and geographic diversity, with about half of its revenues coming from outside the U.S. It also maintains low-cost and efficient global manufacturing operations. We estimate that sales in the crane business will account for about 60% of total revenues and sales in the food service segment will represent about 40%. Operating conditions in the crane end markets are stabilizing and construction activity is increasing, in our view, both in the U.S. and abroad. We believe this will continue, and Manitowoc should continue to benefit from the increased activity and from modest improvements in its steady food service segment.
The outlook is stable. "We believe the improvement in Manitowoc's crane end markets will continue along with a modest improvement in the company's more stable food service segment," said Ms. Hom. "As a result, we expect steady operating performance to continue through 2014 and credit measures to improve modestly over the next 12-18 months."
We could lower the rating if the recovery in the crane end market falters, causing a deterioration in credit measures or hurts liquidity. This could occur if, at the bottom of a downturn, credit measures weakened with debt to EBITDA approaching 5x, or if FFO to debt falls below 12% and remain at that level. We could also lower the rating if Manitowoc pursues large debt funded activities.
We could raise the rating if the company's operating prospects continue to improve and if its liquidity, credit measures, and financial policies support a higher rating. For example, we could raise the rating if we expect debt to EBITDA to improve to less 3x and FFO to debt increased to more 30% and remain at that level.
At the same time we raised our issue-level rating on the company's $1.05 billion senior secured credit facilities to 'BB+' from 'BB'. The recovery rating remains '1', indicating our expectation of very high (90%-100%) recovery in a payment default scenario. We also raised our issue-level rating on the company's $900 million senior unsecured notes (which consists $600 million senior notes due 2020 and $300 million senior notes due 2022) to 'BB-' from 'B+' and revised the recovery rating to '3' from '4' on improved recovery prospects after the company's recent full redemption of its $400 million 9.5% senior notes due 2018. The '3' recovery rating indicates our expectation of meaningful (50%-70%) recovery in a payment default scenario. We withdrew the issue-level and recovery ratings on the recently redeemed notes.
"The upgrades reflect Manitowoc's improved operating performance and credit metrics in recent quarters as a result of the gradual recovery in its crane end markets, the modest improvements in its food service segment, and the greater-than-expected debt reduction," said Standard & Poor's credit analyst Carol Hom. We believe that as the global economy continues to strengthen, the company's operating prospects should continue to improve and its credit metrics will remain appropriate for the rating over the next 12-18 months. We also believe that the company will continue to pay down debt with a portion of the free cash flow it generates. Manitowoc's cash balance and ample availability on its revolver, as well as our expectation for positive free cash flow generation for the year, should continue to support its adequate liquidity.
The revision of the recovery rating on company's $900 million senior notes reflects our expectation of improved recovery prospects for the unsecured debt following the recent full redemption of the $400 million senior unsecured notes due 2018.
The rating reflects Manitowoc's "fair" business risk and "aggressive" financial risk profile assessments. Our "fair" business risk profile stems from Manitowoc's participation in the cyclical construction market partly offset by the more stable food service business. We believe the company will maintain its position as one of the top two crane manufacturers serving the construction market and one of the top two manufacturers by market share of major products in the more stable food service markets. The company should continue to maintain good customer, product, and geographic diversity, with about half of its revenues coming from outside the U.S. It also maintains low-cost and efficient global manufacturing operations. We estimate that sales in the crane business will account for about 60% of total revenues and sales in the food service segment will represent about 40%. Operating conditions in the crane end markets are stabilizing and construction activity is increasing, in our view, both in the U.S. and abroad. We believe this will continue, and Manitowoc should continue to benefit from the increased activity and from modest improvements in its steady food service segment.
The outlook is stable. "We believe the improvement in Manitowoc's crane end markets will continue along with a modest improvement in the company's more stable food service segment," said Ms. Hom. "As a result, we expect steady operating performance to continue through 2014 and credit measures to improve modestly over the next 12-18 months."
We could lower the rating if the recovery in the crane end market falters, causing a deterioration in credit measures or hurts liquidity. This could occur if, at the bottom of a downturn, credit measures weakened with debt to EBITDA approaching 5x, or if FFO to debt falls below 12% and remain at that level. We could also lower the rating if Manitowoc pursues large debt funded activities.
We could raise the rating if the company's operating prospects continue to improve and if its liquidity, credit measures, and financial policies support a higher rating. For example, we could raise the rating if we expect debt to EBITDA to improve to less 3x and FFO to debt increased to more 30% and remain at that level.
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