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Related Issuers
Rating Action:

Moody's rates Brunswick's senior unsecured notes Ba3 and revises outlook to positive

Global Credit Research - 08 May 2013

New York, May 08, 2013 -- Moody's Investors Service rated Brunswick Corporation's ("Brunswick") $150 million senior unsecured notes Ba3. At the same time, the Ba3 Corporate Family Rating was affirmed and the outlook was revised to positive. Proceeds from the offering coupled with cash on hand will be used to tender for the $250 million senior secured notes due 2016.

"The refinancing benefits Brunswick's credit profile as it further reduces leverage, but modestly weakens the company's liquidity profile," said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service. With this refinancing, debt to EBITDA is around 2.75 times. "If Brunswick's operating performance continues to improve and leverage is maintained around these levels, positive rating momentum will accelerate," noted Cassidy. The marine market has shown steady growth over the last year or two for all sectors, except fiberglass sterndrive/nboard boats. "However, even this market should eventually stabilize as boats get older and boating participation remains steady," he noted. The positive outlook, however, is not predicated on this recovery. Rather, it is based on Moody's expectation of modest earnings growth and improved credit metrics.

The unsecured notes benefit from subsidiary guarantees. The guarantees will fall away upon the release of subsidiary guarantees under the ABL revolving credit facility or if the notes are rated Investment Grade by both Moody's and S&P.

The following rating was assigned:

$150 million senior unsecured notes with subsidiary guarantees due 2021 at Ba3 (LGD 4, 54%);

The following ratings were affirmed:

Corporate Family Rating at Ba3;

Probability of Default Rating at Ba3-PD;

Senior unsecured notes due 2023-2027 ($274 million outstanding) at B2 (LGD 6, 92%);

The following rating was affirmed, but will be withdrawn:

$350 million senior secured notes due 2016 ($250 million outstanding) at Ba1 (LGD 2, 23%);

The following rating was downgraded:

Speculative grade liquidity rating to SGL-2 from SGL-1

For additional information, please refer to Moody's Credit Opinion of Brunswick published on Moodys.com.

RATINGS RATIONALE

Brunswick's Ba3 Corporate Family Rating reflects the highly discretionary nature of pleasure boats and marine related products, which makes Brunswick's revenues and earnings highly sensitive to economic weakness. This was demonstrated during the economic downturn when the company suffered a dramatic revenue and earnings decline. But the ratings also reflect the company's moderate leverage and solid interest coverage -- highlighted by debt to EBITDA of under 3 times and EBITA to interest around 2.9 times. Moody's expects additional operating performance and credit metric improvement as the company's operating performance remains strong and marine industry demand continues to improve. A critical component of the rating is Brunswick's good liquidity profile. Other factors supporting the rating are: the relatively stable boating participation trends, good operating performance of Brunswick's dealership network and the company's strong parts & accessories business. The company's stable Bowling & Billiards and Fitness businesses, seasoned management team and its joint venture agreement with General Electric Capital Corporation for its floorplan financing also support the rating. Brunswick's international presence, which accounts for over a third of its revenue, benefits the rating, but its exposure to Europe, which makes up about 15% of its revenue, is a constraint.

The positive outlook reflects Moody's expectation that marine industry demand trends will improve, except for fiberglass stern drive inboard boats and that boating participation trends will stay steady. The outlook also reflects Moody's view that the operating results of the Marine Engine Segment, including the parts and accessories business, will remain strong. Moody's expects credit metrics to continue improving through earnings growth.

Because of Brunswick's sensitivity to macroeconomic conditions, its credit metrics need to be stronger than other similarly-rated consumer durable companies. Credit metrics necessary for an upgrade are debt to EBITDA remaining below 3 times (currently below 3 times) and EBITA to interest sustained above 3 times (currently around 3 times). Additionally, liquidity must stay good for an upgrade to be considered.

Credit metrics which could prompt a downgrade would include debt to EBITDA sustained above 4.5 times, mid single digit EBITA to revenue margins or interest coverage approaching 1.5 times. Additionally, if the company's liquidity profile meaningfully deteriorates, the long term rating and liquidity rating could be downgraded.

Subscribers can find further details in the Brunswick Credit Opinion published on Moodys.com.

The principal methodology used in this rating was the Global Consumer Durables published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Brunswick is headquartered in Lake Forest, Illinois. The company manufactures marine engines, pleasure boats, bowling capital equipment and fitness equipment, and operates retail bowling centers. Sales for the twelve months ended March 2013 approximated $3.7 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kevin Cassidy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Brunswick's senior unsecured notes Ba3 and revises outlook to positive
No Related Data.

 

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