Fitch affirms Whirlpool's ratings, including company's IDR at 'BBB'; outlook revised to positive from stable
June 9, 2014
– Fitch Ratings has affirmed Whirlpool Corporation's (NYSE: WHR) ratings, including the company's Issuer Default Rating (IDR) at 'BBB'. The Rating Outlook has been revised to Positive from Stable. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS
WHR's ratings reflect its position as the world's largest appliance manufacturer, with leading market positions in many regions. WHR's global operating platform, increased manufacturing efficiency, and well-recognized skills in innovation have enabled it to improve its cost structure, compete more effectively around the world, and adjust to escalating material costs. Risks include intense global competition, volatility of raw material costs, sensitivity to business cycles, and ongoing regulatory issues.
The Positive Outlook takes into account the company's improving credit metrics (and Fitch's expectation that WHR will sustain these metrics), solid liquidity position, and continued modest growth in global demand for appliances.
IMPROVING CREDIT METRICS
WHR's key credit metrics improved during 2012 and 2013 relative to 2011 levels. The company's leverage as measured by debt-to-EBITDA stood at 1.2x at the end of 2013 compared with 1.5x at the conclusion of 2012 and 1.7x at year-end 2011. Total adjusted debt-to-EBITDAR was 2.1x at the conclusion of 2013 compared with 2.5x at year-end 2012 and 2.8x at the end of 2011. Interest coverage improved to 11.2x in 2013 from 8.3x in 2012 and 7.0x in 2011.
For the latest-twelve-months (LTM) ending March 31, 2014, the company's debt-to-EBITDA and adjusted debt-to-EBITDAR ratios increased to 1.6x and 2.5x, respectively. During the first quarter of 2014, WHR issued $800 million of senior notes to pre-fund $600 million of senior notes coming due in the second and third quarters of 2014. On a pro forma basis (when excluding these debt maturities), debt-to-EBITDA and adjusted debt-to-EBITDAR would have been 1.4x and 2.2x, respectively.
Fitch expects WHR's credit metrics will remain relatively stable during 2014. Fitch expects debt-to-EBITDA will settle at 1.3x at year-end 2014 while adjusted debt-to-EBITDAR will be approximately 2.1x. Interest coverage is forecast to improve to 12.5x at the conclusion of 2014.
The near-term operating outlook for global appliance demand remains relatively stable despite weak growth in international markets. In the U.S., Fitch expects appliance demand will increase mid-single-digits during 2014. Fitch projects single-family housing starts will improve 15% to 710,000 and multifamily volume will grow about 9% to 335,000. Thus, total starts should top 1 million this year. New home sales are forecast to advance about 16% to 500,000, while existing home volume should be flat at 5.10 million, largely due to fewer distressed homes for sale. Internationally, Fitch expects appliance shipments will remain flat to slightly higher in 2014 compared with 2013 levels.
SOLID LIQUIDITY POSITION
WHR has solid liquidity with cash of $1.67 billion as of March 31, 2014, and no borrowings under its $1.725 billion revolving credit facility maturing in June 2016. The company also has committed credit facilities in Brazil, which provide up to 1,120 million Brazilian reais (approximately $478 million as of March 31, 2014), maturing in 2014 and 2015. There were no borrowings under these facilities at the end of 1Q14. Fitch expects WHR will have continued access to its multi-year revolving credit facility as it has sufficient room under the covenant requirements of the revolver.
A majority of the company's cash is held in foreign countries (approximately 95% of cash as of Dec. 31, 2013 was held overseas). WHR's intent is to permanently reinvest these funds outside the U.S. and the company's current plans do not demonstrate the need to repatriate these funds to support U.S. operations.
The company has significant debt maturing over the next four years, with roughly $1.6 billion coming due between 2014 and 2017. WHR has demonstrated its ability to access the capital markets and refinance its debt. In February 2014, the company completed a debt offering of $250 million of 1.35% senior notes due 2017, $250 million of 2.4% senior notes due 2019 and $300 million of 4% senior notes due 2024. The company issued these notes to prefund $600 million of debt maturities during 2Q14 and 3Q14. Fitch expects it will again access the debt markets next year to refinance its 2015 debt maturity.
FREE CASH FLOW GENERATION
The company generated $405 million of free cash flow (FCF: cash flow from operations less capital expenditures and dividends) for the LTM period ending 3/31/14 compared with $497 million during 2013 and $65 million during 2012. The 2012 FCF was reduced by a $275 million final installment payment to settle a Brazilian collection dispute. Fitch expects WHR will generate between $400 million and $500 million of FCF during 2014.
Management continues to be disciplined in the uses of its cash and cash flow and will deploy cash to: fund the business, manage debt and its pension obligations, return cash to shareholders and pursue M&A opportunities.
The company recently increased its quarterly dividend payment by 20%. (WHR also increased its quarterly dividend payment by 25% in April 2013.) During 2013, the company repurchased $350 million of stock, completing a $500 million share repurchase program authorized in 2008. (WHR did not repurchase stock during the 2009-2012 periods.) The board also recently approved a new $500 million share repurchase authorization.
Fitch expects management will remain disciplined in prioritizing the uses of its cash and cash flow. Funding the business as well as pension contributions will be primary uses of cash and cash flow. Additionally, excess FCF may also be used to fund the announced acquisition of a 51% equity stake in Hefei Rongshida Sanyo Electric Co., Ltd. for RMB 3.4 billion (approximately $552 million as of March 31, 2014). In the absence of acquisition activities, Fitch expects WHR will make moderate share repurchases that will be funded by FCF.
There are ongoing regulatory issues that could negatively affect the company's financial profile. WHR's Brazilian operations have received governmental assessments from Brazil related to claims for income and social contribution taxes associated with the Brazilian government's export incentive program (BEFIEX) credits monetized by WHR from 2000 to 2002 and 2007 through 2011. The total outstanding tax assessment for income and social contribution taxes related to the BEFIEX credits, including interest and penalties, is approximately 1.2 billion Brazilian reais (equivalent to roughly $553 million as of March 31, 2014). The company is disputing these tax matters in various courts and has not accrued any amounts relating to these assessments.
There are also antitrust investigations relating to WHR's compressor business. Government authorities in Brazil, Europe and the United States and other jurisdictions have entered into agreements with the company and concluded their investigations. In connection with these agreements, the company has incurred cumulative charges of approximately $411 million since 2009, of which $99 million remains accrued. The company has $47 million of installment payments (plus interest) remaining to be made to government authorities at various times through 2015. WHR is also continuing to work toward a resolution of ongoing government investigations in other jurisdictions. Management indicated that it cannot reasonably estimate the amount it may incur and has not accrued charges relating to these ongoing investigations.
An upgrade of the company's IDR to BBB+ may be considered in the next 6-12 months if the company performs in line with Fitch's expectations, particularly debt-to-EBITDA consistently situating within a range of 1x - 1.5x, interest coverage sustaining above 10x, and if WHR continues to maintain a solid liquidity position.
The Outlook could be stabilized if there is some deterioration in operating performance, leading to EBITDA margins below 10%, leverage consistently in the 1.5x - 2.0x level, and interest coverage between 6.0x - 10.0x.
On the other hand, negative rating actions may be considered if there is significant deterioration in global demand and consequently the company's operating performance, WHR undertakes shareholder friendly activities funded by debt, and/or there is material judgment against the company related to existing regulatory proceedings, leading to leverage levels consistently exceeding 2.5x and interest coverage falling below 5.5x.
Fitch has affirmed the following ratings with a Positive Outlook:
--Long-Term IDR at 'BBB';
--Short-Term IDR at 'F2';
--Commercial paper at 'F2';
--Senior unsecured notes at 'BBB';
--Bank revolving credit facility at 'BBB' (Whirlpool Corp., Whirlpool Europe B.V., Whirlpool Finance B.V. and Whirlpool Canada Holding Company as borrowers).
--Long-Term IDR at 'BBB';
--Senior unsecured notes at 'BBB'.
Whirlpool Finance B.V.
--Short-Term IDR at 'F2';
--Commercial paper (CP) at 'F2'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
© 2021 Business Wire, Inc., All rights reserved.