Fitch Rates DuPont's Proposed $2B Note Issuance 'A'; Outlook Stable
CHICAGO -- February 12, 2013
Fitch Ratings has assigned an 'A' rating to E. I. du Pont de Nemours and
Company's (DuPont) proposed $2 billion note issuance with tenors of 10 and 30
years. The Rating Outlook is Stable. A complete list of ratings is provided at
the end of this release.
The notes will be senior unsecured obligations of DuPont and will rank equally
with the company's $11.7 billion of debt as of Dec. 31, 2012. DuPont plans to
use the proceeds for general corporate purposes, including the repayment and
refinancing of debt. The notes are being issued under the company's indenture
dated June 1, 1992. Key covenants include restrictions on secured debt,
restrictions on sale and leaseback transactions, and mergers and asset sales.
There are no financial covenants. The notes will have make whole call
provisions as well as a put option upon a change of control and a downgrade of
the notes below investment grade.
KEY RATING DRIVERS
The ratings reflect DuPont's strong business profile, solid liquidity, and
substantial free cash flow generation. DuPont benefits from end-market
diversification and global reach (particularly into emerging markets),
integrated operations and leading market positions and brands across multiple
segments. The company's product portfolio is primarily R&D-based and often
patent protected, enabling sustainable market advantages and high operating
DuPont's credit metrics are in line with Fitch's expectations. The company
generated $1.5 billion in free cash flow in 2012, meeting Fitch's expectation
of greater than $1 billion. DuPont's total debt-to-operating EBITDA was 2.1
times (x), greater than Fitch's expectation of below 2.0x. However, DuPont
Performance Coatings (DPC) was reclassified as a discontinued operation, and
including EBITDA from that business, total debt-to-adjusted EBITDA would be
below 2.0x. Net debt to operating EBITDA at Dec. 31, 2012 was 1.3x, meeting
Fitch's expectation of below 1.5x.
This issuance along with the divestiture of DPC will keep DuPont's gross
leverage above 2.0x in the near term. However, net leverage is expected to
remain well below 1.5x and free cash flow will is forecast to be greater than
$1 billion. Further, DuPont has initiated a cost cutting plan that it expects
will achieve pre-tax cost savings of approximately $300 million in 2013
increasing to $450 million per year in subsequent years. The savings from the
plan will offset a large portion of the operating income of DPC. Through
growth and repaying maturities with cash, Fitch expects DuPont's gross
leverage to be below 2.0x by mid-2014.
Liquidity should remain strong with expected free cash flow generation after
capital expenditures and dividends of at least $1 billion in 2013, $4.4
billion in cash on hand and marketable securities and $4.3 billion in
available credit at Dec. 31, 2012. The company's $3.5 billion revolver is due
in February 2015 and contains a debt-to-capital covenant with a maximum of
67%. DuPont has significant headroom under the covenant which it is expected
to maintain. Near-term maturities are manageable with $1.3 billion due in
2013, $1.7 billion due in 2014, $1.5 billion due in 2015, and $1.6 billion due
A rating concern is the underfunding of the pension funds. The U.S. pension
plans with plan assets were underfunded by $6.6 billion at Dec. 31, 2012. The
company does not expect to make contributions for 2013 after making
contributions of roughly $500 million in 2010 and early 2012. However, Fitch
recognizes DuPont may make significant cash contributions to the pension plan
in the future given the substantial underfunded position of the company's
Positive: Future developments that could lead to positive rating actions
--Total debt to EBITDA below 1.5x on a midcycle basis in combination with
annual FCF over $1.5 billion.
Negative: Future developments that could lead to negative rating actions
--Leveraging transactions: debt financed share repurchases, dilutive
--Diminished cash balances while gross leverage remains above 2.0x;
--Weak or negative FCF leading to incremental borrowings.
FULL RATINGS LIST
Fitch rates DuPont as follows:
--Issuer Default Rating (IDR) 'A';
--$3.5 billion unsecured bank revolver 'A';
--Senior unsecured notes 'A';
--Senior unsecured debentures 'A';
--Short term IDR 'F1';
--Commercial Paper 'F1'.
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);
--'Rating Chemical Companies' (Aug. 9, 2012);
--'2013 Outlook: North American Chemicals Industry' (Jan. 28, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Chemical Companies
2013 North American Chemical Outlook
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Christopher M. Collins, CFA, +1-312-368-3196
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Monica M. Bonar, +1-212-908-0579
Glen Grabelsky, +1-212-908-0577
Brian Bertsch, New York, +1 212-908-0549
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