S&P Upgrades ITT Corp. (ITT) to 'BBB'; Outlook is Stable

S&P Global Ratings today raised its long-term corporate credit rating on ITT Corp. (NYSE: ITT) to 'BBB' from 'BBB-' and its short-term corporate credit rating to 'A-2' from 'A-3' and simultaneously reassigned its corporate credit rating to ITT Inc. from ITT Corp., in conjunction with the company's internal reorganization. Our corporate credit rating has been withdrawn on ITT Corp. as a result of the reorganization. The outlook is stable.

We also assigned our 'A-2' short-term issue-level rating on the company's commercial paper program.

"We are raising our corporate credit rating on ITT from 'BBB-' to 'BBB', based on our assessment of the company's financial risk profile," said S&P Global Ratings credit analyst Daniel Lee.

The company has been able to maintain stable credit metrics, despite weakness in key end-markets and increased debt associated with its Wolverine acquisition. As a result, we have raised the company's financial risk profile score to modest from intermediate. The company's satisfactory business risk profile and revised financial risk profile results in a 'bbb+' anchor. We applied a negative comparable ratings analysis (CRA) modifier because we view the company's size and scale to be weaker than other capital goods companies within the satisfactory business risk profile range. We have also revised the company's liquidity score to strong from adequate, though it does not impact the company's ratings.

The stable outlook reflects S&P Global Ratings' view that ITT will continue to maintain credit measures that are in line with its current ratings, despite continued end-market weakness and currency headwinds. We expect the company to maintain adjusted debt-to-EBITDA of between 1.5x and 2x and FFO-to-debt between 45% and 60%.

We could lower the rating on ITT if the company pursues large debt-financed acquisitions or if continued end-market weakness results in deteriorating credit measures, such that adjusted debt-to-EBITDA exceeds 2x or FFO-to-debt is below 45% and unlikely to improve in over the next 12 to 18 months. This could occur if the company experiences mid- to high-single-digit percentage revenue declines, combined with a 200 basis-point decline in operating margins.

Given the company's scale and size, continued end-market weakness, and modest financial risk profile, we do not expect to raise the rating on the company over the next 24 months. We could consider raising the rating on ITT if the company's credit metrics improve further, such that adjusted debt-to-EBITDA is below 1.5x and FFO-to-debt is above 60% on a sustained basis. This could occur if the company experiences mid-single-digit percentage revenue growth, combined with a 350 basis-point improvement in operating margins.

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