Fitch Rates Eaton Corporation plc Bank Facility 'BBB+'; Short-Term Rated 'F2'

  Fitch Rates Eaton Corporation plc Bank Facility 'BBB+'; Short-Term Rated
  'F2'

Business Wire

CHICAGO -- December 06, 2012

Fitch Ratings assigns a bank facility rating of 'BBB+' to Eaton Corporation
plc as an eligible borrower under three existing bank facilities totaling $2
billion. Fitch also assigns Eaton Corporation plc a Short-Term Issuer Default
Rating of 'F2' and a commercial paper rating of 'F2'. The Rating Outlook is
Negative. A detailed ratings list follows at the end of this release.

Fitch's ratings for Eaton incorporate the increase in debt and leverage
associated with the Cooper acquisition. The acquisition price was
approximately $11.8 billion, not including approximately $1.1 billion of debt
at Cooper as of the acquisition closing date. Eaton funded the transaction
with equity, available cash, and $4.9 billion of senior unsecured notes issued
in November 2012. Fitch estimates pro forma debt/EBITDA at approximately 3.3x
compared to Eaton Corporation's standalone leverage of 1.84x at Sept. 30,
2012.

The Negative Outlook reflects the potential for sustained high leverage if
Eaton is unable to realize expected synergies following the acquisition of
Cooper, or if financial results are pressured by a slowdown in Eaton's
electrical and other industrial end markets. Some of Eaton's key end markets
are experiencing weaker demand including heavy duty trucks, construction
equipment, certain international electrical markets, the aerospace aftermarket
and the automotive market in Europe. Eaton has taken steps to reduce its cost
structure in the truck and international electrical businesses which should
mitigate the negative impact of volume pressure on margins. Other rating
concerns include normal integration risks, the negative impact on leverage if
Eaton makes additional debt-funded acquisitions in the near term, which Fitch
believes is unlikely, and the company's sizeable underfunded pension
obligation.

Eaton's leverage, adjusted to include the impact of the Cooper acquisition, is
weak for the ratings, but Fitch anticipates the company will use available
cash primarily to reduce debt and return credit metrics to stronger levels
within two to three years. Fitch estimates debt/EBITDA will decline toward
2.75 during 2013 and below 2.5x by the end of 2014. Leverage could be around
2.0x or lower by the end of 2015. Eaton could reduce leverage more quickly if
it realizes expected cost and revenue synergies with Cooper and sees a
recovery in its end markets. However, the anticipated reduction in leverage
could be delayed if economic conditions weaken further or if margins improve
more slowly than anticipated across the combined company, possibly
contributing to a further downgrade of the ratings.

Eaton's 12-month pro forma free cash flow after dividends, including Cooper,
was nearly $1.1 billion at Sept. 30, 2012. Free cash flow should benefit from
ongoing actions to improve margins at Eaton's existing businesses and the
absence of Eaton's $154 million contribution to a VEBA trust in 2011. After
2012, cash flow and profitability should improve as Eaton integrates Cooper.
Eaton estimates cost synergies at $260 million annually within four years, and
estimates annual cash management and tax benefits of approximately $160
million. Eaton also expects to realize sales synergies. These benefits will be
offset by estimated acquisition integration costs totaling $200 million
through 2015.

FCF will continue to reflect material pension contributions associated with
Eaton's U.S. pension plans which were underfunded by $1.2 billion at year end
2011. Non-U.S. plans were underfunded by $516 million. Cooper's net pension
liability was much smaller at $137 million.

Both Eaton and Cooper have solid operating profiles. The combined company can
be expected to generate consistent profits and free cash flow over the long
term, although exposure to cyclical end markets can temporarily affect
short-term results. Slightly more than half of Eaton's pro forma revenue will
be in the electrical sector, and approximately 25% of sales of the combined
company will be located in emerging markets. Both companies make a wide range
of electrical components used in industrial, utility, commercial and
government applications with minimal product overlap. Cooper's revenue,
margins and free cash flow are benefiting from demand related to global
industrial and energy projects, offset by weakness in Europe and in U.S.
utility markets.

Eaton Corporation's liquidity at Sept. 30, 2012 included $1 billion of cash
and short-term investments, approximately half of which was located overseas
where it is considered to be permanently reinvested. Liquidity included full
availability under three revolvers totaling $2.0 billion. The revolvers remain
in place following the acquisition of Cooper. The facilities include a
limitation on debt-to-capitalization of 0.6x that becomes effective if Eaton's
ratings, as defined in the agreements, are lower than 'A-'. Eaton also had a
$6.75 billion bridge facility available to provide temporary liquidity during
the Cooper acquisition process.

Liquidity was offset by $415 million of short-term debt and current maturities
at Sept. 30, 2012. Pro forma liquidity will be supported by proceeds to be
received from the divestiture of Apex Tool Group expected to close in the
first half of 2013 for a total price of approximately $1.6 billion. Apex is a
tool business operated as a joint venture and owned equally by Cooper and
Danaher Corporation.

WHAT COULD TRIGGER A RATING ACTION

Positive: An upgrade is unlikely in the near term, but future developments
that may, individually or collectively, lead to a stable rating outlook
include:

--Stronger earnings and FCF that would enable Eaton to reduce leverage
consistently during the next 12-18 months;

--An effective integration of Cooper that supports growth in combined market
share and improved competitive position;

--Realization of higher, sustainable margins across the combined company.

Negative: Future developments that may, individually or collectively, lead to
a negative rating action include:

--Slower-than-anticipated reduction in leverage that could result from reduced
free cash flow or material discretionary spending for acquisitions or share
repurchases;

--A further slowdown in Eaton's end markets that could impair financial
results;

--Failure to realize expected acquisition synergies, or unexpected challenges
integrating Cooper.

Fitch has assigned the following ratings:

Eaton Corporation plc

--Senior unsecured bank credit facilities 'BBB+';

--Short-term IDR 'F2';

--Commercial paper 'F2'.

Fitch's existing ratings for Eaton are as follows:

Eaton Corporation plc

--Issuer Default Rating (IDR) 'BBB+'.

Eaton Corporation

--IDR 'BBB+';

--Senior unsecured bank credit facilities 'BBB+';

--Senior unsecured long-term debt 'BBB+';

--Short-term IDR 'F2';

--Commercial paper 'F2'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);

--'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Short-Term Ratings Criteria for Non-Financial Corporates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

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Contact:

Fitch Ratings
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Eric Ause
Senior Director
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Fitch, Inc.
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or
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or
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