Standard & Poor's Ratings Services affirmed its ratings on Newell Rubbermaid Inc. (NYSE: NWL), including the 'BBB-' corporate credit rating and 'A-3' short-term rating, and revised the rating outlook to negative from stable.

We understand Newell has secured bridge financing for the transaction and expects to access the capital markets to obtain new debt before the transaction closes. At that time, we plan to rate the related debt instruments. We expect the transaction (subject to regulatory approvals and approval by shareholders of both Newell and Jarden) to close in the second quarter of 2016. The combined entity will be called Newell Brands and will have about $13 billion of outstanding debt at close.

"The outlook revision reflects our belief that integration difficulties, if any, would weaken performance metrics and make debt repayment slower than we expect," said Standard & Poor's credit analyst Mariola Borysiak. "Pro forma for the merger, we estimate the debt-to-EBITDA ratio will increase to about 5x at 2015 fiscal year-end. Although this ratio is materially weaker than our previously expected pro forma 3.5x following the Elmer's acquisition, we believe the company will prioritize debt reduction and will use its robust cash flow to reduce debt balances to return debt leverage to below 4x at the end of fiscal 2017."

The transaction combines two companies with number 1 or 2 positions in a diverse mix of niche consumer products categories, providing meaningful benefits to Newell as it will complement its portfolio of brands, expand its global reach, allow for cross-selling, and provide access to new selling channels. Jarden has historically grown through acquisitions and, over the past few years, Newell has been successful at acquiring brands in faster growing categories and divesting brands with slower growth. Although Newell has successfully integrated previous acquisitions, we believe integration risk is inherent given the transformational nature of the Jarden transaction, which more than doubles Newell's size. While this transaction adds scale, diversity, and high-quality brands, Newell Brands could have difficulty managing the large number of brands and merging the two companies' cultures.

On a pro forma basis, the combined company will generate over $15 billion in revenues at the end of the 2015 fiscal year. Although Jarden's EBITDA margin is lower than Newell Rubbermaid's (14.4% and 16.8%, respectively, for the 12 months ended Sept. 2015), we expect meaningful margin expansion over the next years. We project EBITDA margin will improve to over 18% two years after closure of the transaction.

Standard & Poor's would consider downgrading the company, including lowering the short-term rating to 'B', if Newell's debt leverage remains above 4x on a sustained basis. We calculate that about $500 million less debt reduction and about 5% lower EBITDA than our projected levels at 2017 fiscal year-end would lead to leverage above 4x.

A revision of the outlook to stable would be predicated on Newell's ability, in accordance with its plans, to integrate Jarden and reduce debt leverage such that debt to EBITDA declines to under 4x. Under our projected performance we calculate that about 14% of debt reduction from pro forma levels and about 15% EBITDA growth would result in the debt-to-EBITDA ratio improving to below 4x at end of 2017 fiscal.