Fitch Affirms DuPont's IDRs at 'A/F1'; Outlook Stable
CHICAGO -- March 15, 2013
Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) and
senior unsecured debt ratings at 'A' and the short-term IDR and CP ratings at
'F1' for E.I. DuPont de Nemours and Company (DuPont).
The Rating Outlook is Stable. A full list of ratings is provided at the end of
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
Fitch expects DuPont's Agriculture segment to continue its strong operating
performance. The segment accounts for a third of DuPont's operating income and
is driven by Pioneer seeds. High crop prices support another large number of
planted acres in 2013, and this in turn supports demand and volume for seeds
and crop protection. DuPont's Performance Chemicals segment accounts for over
a quarter of DuPont's operating income and roughly half of its sales are TiO2
products. DuPont is the largest TiO2 producer worldwide. TiO2 prices are
depressed but prices are cyclical and recovery is expected with more robust
global economic growth.
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 2.1x,
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.
DuPont's recent issuance of $2 billion in notes along with the divestiture of
DPC ($4 billion in net proceeds, mostly overseas cash which will remain on the
balance sheet) will keep the company'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 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 of $1.3 billion due in 2013, $1.7 billion
due in 2014, $1.5 billion due in 2015, and $1.6 billion due in 2016 are
manageable in light of FCF, large cash balances, and market access.
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 meaningful but likely manageable cash contributions
to the pension plan in the future given the substantial underfunded position
of the company's pension plans.
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
--Substantially diminished cash balances while gross leverage remains above
--Weak or negative FCF leading to incremental borrowings.
Fitch affirms the following ratings:
--Long term IDR at 'A';
--$3.5 billion unsecured bank revolver at 'A';
--Senior unsecured notes at 'A';
--Senior unsecured debentures at 'A';
--Short term IDR at 'F1';
--Commercial Paper at 'F1'.
The Rating Outlook is Stable.
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
Sean T. Sexton, CFA, +1-312-360-3130
Brian Bertsch, +1-212-908-0549
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