S&P Raises Rating on TE Connectivity (TEL) to 'A-'; Reflects Consistent, Strong Cash Flow Generation
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Standard & Poor's Ratings Services today said it raised its corporate credit rating on TE Connectivity Ltd. (NYSE: TEL) to 'A-' from 'BBB+'. The outlook is stable. We also raised the ratings on the company's senior unsecured and subordinated debt and affirmed the 'A-2' commercial paper rating.
"The upgrade reflects the company's consistent strong cash flow generation, which has enabled it to strengthen its product portfolio while at the same time funding shareholder and growth initiatives and reducing debt," said Standard & Poor's credit analyst Jacob Schlanger.
We now view financial risk as "minimal," a revision from "modest." The stable outlook reflects our expectation that the company will deliver consistent earnings performance and strong cash generation, while continuing to pursue strategic acquisitions and shareholder initiatives.
The rating reflects the company's "satisfactory" business risk profile stemming from its leading connector share in growing markets and a continued focus on cost reduction and margin improvement. Its participation in a very competitive and fragmented market somewhat offsets this position. We view financial risk as "minimal," reflecting the company's consistent and strong cash flow generation and declining leverage, which are balanced by shareholder returns and growth initiatives. The company's surplus cash is netted against the outstanding debt, per Standard & Poor's criteria. Country risk is "low," reflecting broad geographic diversification, and industry risk is "moderately high" according to our criteria. Management and governance is "satisfactory."
The stable outlook reflects our view that TE Connectivity will continue to deliver consistent earnings performance and strong cash generation, despite ongoing challenging market conditions.
An upgrade, while unlikely over the next one to two years given the company's current growth strategies, can be achieved if the company maintains its current performance and reduces and maintains leverage at 1x or lower.
A downgrade could occur if the company were to pursue more aggressive shareholder initiatives or acquisitions that would result in sustained leverage in the 1.75x area.
"The upgrade reflects the company's consistent strong cash flow generation, which has enabled it to strengthen its product portfolio while at the same time funding shareholder and growth initiatives and reducing debt," said Standard & Poor's credit analyst Jacob Schlanger.
We now view financial risk as "minimal," a revision from "modest." The stable outlook reflects our expectation that the company will deliver consistent earnings performance and strong cash generation, while continuing to pursue strategic acquisitions and shareholder initiatives.
The rating reflects the company's "satisfactory" business risk profile stemming from its leading connector share in growing markets and a continued focus on cost reduction and margin improvement. Its participation in a very competitive and fragmented market somewhat offsets this position. We view financial risk as "minimal," reflecting the company's consistent and strong cash flow generation and declining leverage, which are balanced by shareholder returns and growth initiatives. The company's surplus cash is netted against the outstanding debt, per Standard & Poor's criteria. Country risk is "low," reflecting broad geographic diversification, and industry risk is "moderately high" according to our criteria. Management and governance is "satisfactory."
The stable outlook reflects our view that TE Connectivity will continue to deliver consistent earnings performance and strong cash generation, despite ongoing challenging market conditions.
An upgrade, while unlikely over the next one to two years given the company's current growth strategies, can be achieved if the company maintains its current performance and reduces and maintains leverage at 1x or lower.
A downgrade could occur if the company were to pursue more aggressive shareholder initiatives or acquisitions that would result in sustained leverage in the 1.75x area.
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