Fitch Affirms Whirlpool's IDR at 'BBB'; Outlook Stable
CHICAGO -- June 10, 2013
Fitch Ratings has affirmed Whirlpool Corporation's (NYSE: WHR) ratings,
including the company's Issuer Default Rating (IDR) at 'BBB'. The Rating
Outlook is Stable. A complete list of rating actions follows at the end of
this press release.
KEY RATING DRIVERS
WHR's ratings and Outlook 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 innovation
capabilities 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.
WHR's key credit metrics improved during 2012 and so far in 2013 relative to
2011 levels and remain appropriate for the rating category. The company's
leverage as measured by debt-to-EBITDA stood at 1.5x for the latest 12-month
(LTM) period ending March 31, 2013 compared with 1.5x at the end of 2012 and
1.7x at year-end 2011. Total adjusted debt-to-EBITDAR was 2.5x for the March
31, 2013 LTM compared with 2.5x at year-end 2012 and 2.8x at the end of 2011.
Interest coverage improved to 8.9x for the LTM period from 8.3x during 2012
and 7.0x during 2011. Fitch expects the current credit metrics to remain
relatively stable during fiscal 2013.
The near-term operating outlook for global appliance demand remains relatively
stable despite continuing challenges in Europe. In the U.S., Fitch expects
appliance demand will increase slightly compared with last year's levels.
Fitch currently projects U.S. housing starts will increase 18%, while new home
sales will improve approximately 22% and existing home sales will grow 7.5%
during the year. Home improvement spending in the U.S. is projected to advance
4% in 2013. Internationally, appliance shipments in Latin America and Asia are
expected to grow modestly while demand in Europe will likely remain flat to
slightly lower compared with 2012 levels.
During the fourth quarter of 2011 (4Q'11), the company announced restructuring
initiatives that will result in substantial cost and capacity reductions. The
plan includes a workforce reduction of more than 5,000 positions primarily in
North America and Europe and the closure and relocation of certain
These actions and previously announced initiatives are expected to result in
$500 million of restructuring charges ($430 million of cash outlays) beginning
in 4Q'11 with completion expected by the end of 2013. Annual savings of
approximately $400 million are expected to be realized by year-end 2013. WHR
incurred $78 million of restructuring charges during the 4Q'11, $237 million
during 2012 and $42 million during the 1Q'13. Total restructuring charges are
expected to be roughly $185 million in 2013 (the company expects to incur
about $225 million of future cash expenditures for these initiatives).
While Fitch has historically excluded restructuring charges from its
calculation of recurring EBITDA, Fitch may re-consider this position if the
company continues to have meaningful, ongoing restructuring charges.
SOLID LIQUIDITY POSITION
WHR has solid liquidity with cash of $750 million as of March 31, 2013, 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 880 million Brazilian reais (approximately $438 million as of
March 31, 2013) and mature in 2014. There were no borrowings under these
facilities at the end of 1Q'13. 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.
The company has significant debt maturing over the next four years, with
roughly $1.3 billion coming due between 2014 and 2016. While WHR has
sufficient cash and revolver availability to repay debt coming due in the next
few years, Fitch expects it will again access the debt markets to refinance
some of these upcoming maturities. WHR has demonstrated its ability to
refinance its debt with the recent issuance of $250 million of 3.7% senior
notes due 2023 and $250 million of 5.15% senior notes due 2043 to refinance
$500 million of notes that matured in March 2013.
The company generated $201 million of free cash flow (FCF: cash flow from
operations less capital expenditures and dividends) for the March 31, 2013 LTM
compared with $65 million during 2012. The 2012 FCF was reduced by a $275
million final installment payment to settle a Brazilian collection dispute.
Fitch currently expects WHR will generate between $325 million and $375
million of FCF during 2013.
Fitch expects management will remain disciplined in prioritizing the uses of
its cash and cash flow. Funding the business as well as debt management and
pension contributions will be the primary uses of cash flow. The company
recently increased its quarterly cash dividend payment by 25%. The company
also has $350 million remaining under its current share repurchase
authorization. However, Fitch does not expect Whirlpool to undertake
meaningful share repurchases in the short term.
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. As
of March 31, 2013, 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
$600 million). 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 roughly $360 million of charges, of which $111 million remain
accrued. The company has $74 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.
Fitch currently does not expect the company's ratings to change in the next 12
months. However, a Positive Outlook may be considered if the company's credit
metrics improve from current levels, particularly debt-to-EBITDA situating
within a range of 1x-1.5x, interest coverage consistently above 10x, and if
WHR continues to maintain a solid liquidity position.
Negative rating actions may be considered if there is significant
deterioration in global demand and the company's operating performance, and as
a result leverage levels consistently exceed 2.5x and interest coverage is
Fitch has affirmed the following ratings:
--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
--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' (Aug. 8, 2012);
--'Short-Term Criteria for Non-Financial Corporates' (Aug. 8, 2012);
--'Evaluating Corporate Governance' (Dec. 12, 2012).
Applicable Criteria and Related Research:
Evaluating Corporate Governance
Short-Term Ratings Criteria for Non-Financial Corporates
Corporate Rating Methodology
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Robert Rulla, CPA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Brian Bertsch, New York, +1 212-908-0549
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