Standard & Poor's Ratings Services affirmed all of its ratings, including its 'BBB' long-term and 'A-2' short-term corporate credit ratings, on U.S.-based manufacturer of water treatment and storage products Pentair Ltd. (NYSE: PNR) and revised the rating outlook to negative from stable.

"The negative rating outlook revision reflects our view that the planned acquisition of ERICO will result in weaker credit measures than previously projected in light of weakness in key end markets such as infrastructure, industrial, and energy-related markets," said Standard & Poor's credit analyst Jaissy Lorenzo.

Pentair expects to issue approximately $1.6 billion of new debt as part of the transaction. We estimate that the transaction will result in adjusted pro forma leverage in the mid- to high-3x area at close, up from about 2.8x as of June 30, 2015. Over the next 12-24 months, we expect the company to restore its balance sheet strength by applying much of its free operating cash flow toward debt repayment. However, the company's challenging operating environment might prevent the company from de-levering to below 3x by the end of 2016. We also expect acquisition or share-repurchase activities to be limited until the company restores credit measures to levels consistent with management's stated financial policies.

The transaction will combine two complementary businesses and modestly benefit Pentair's product diversity, strengthen its position as an infrastructure solution provider to control panel manufacturers and installers, and create new opportunities to cross-sell offerings to support higher sales and profitability.

The negative outlook reflects our expectation that leverage will exceed 3x pro forma for the proposed debt-financed acquisition of ERICO Global Company We also expect the company's operating performance to be pressured by weakness in the company's infrastructure, industrial and energy-related end markets, and headwinds from a stronger dollar, which creates uncertainty around the company's ability to reduce leverage to below 3x by the end of 2016.

We could lower the ratings if the company is unable to reduce leverage to less than 3x in 2016. This could occur if sustained weakness in end-market conditions further pressures the company's operating performance. We could also lower the ratings if additional debt-financed activities result in leverage remaining above 3x for a sustained period.

We would revise the outlook to stable if we expect the company to use its free cash flow primarily to reduce debt and adhere to financial policies consistent with leverage below 3x on a sustained basis.