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29 Mar 2005
MOODY'S AFFIRMS AMERICAN STANDARD INC'S DEBT RATINGS, ASSIGNS Baa3 RATING TO GTD. SR. UNSECURED NOTE ISSUE; OUTLOOK STABLE
Approximately $1.4 billion of Long Term Debt Affected
New York, March 29, 2005 -- Moody's Investors Service assigned a Baa3 rating to American Standard
Inc's $200 million senior unsecured note issue due 2015.
The notes will be guaranteed by American Standard Companies Inc.
(ASD), and by American Standard International Inc (ASII).
Proceeds will be used towards repayment of the 7 3/8% senior notes
due April 2005. At the same time Moody's affirmed the existing
debt ratings of American Standard Inc., (Baa3 guaranteed
senior unsecured). The rating outlook is stable.
The rating reflects ASD's leading market positions in each of its
three business segments, its geographic and product diversity,
and the favorable balance the company enjoys between new and replacement
product sales. ASD's improved operating performance trend,
consistent free cash flow generating ability and more flexible capital
structure following debt reductions of recent years are key factors in
the rating. While acknowledging the reduction in balance sheet
debt to the company's targeted level of approximately $1.5
billion at year-end December 31, 2004, the rating also
considers the higher degree of leverage remaining in the company on an
adjusted debt basis (inclusive of receivables sold and net asbestos liabilities),
which results in an adjusted debt to capital ratio of 71%.
Moody's expects however that the business strengths of ASD's operating
segments will contribute to the company generating significant and relatively
consistent levels of operating cash flow through the economic cycles.
The stable outlook reflects Moody's expectation that ASD will continue
to focus on maintaining a less leveraged capital structure, exhibit
ongoing earnings sustainability and growth and be free cash flow generative
(operating cash flow minus capital expenditures). The outlook further
considers that ASD will be able to mitigate the impact of higher raw material
costs, anticipated to increase on an absolute basis by roughly $200
million in 2005, through various initiatives underway, including
increases in selling prices. However, Moody's remains
concerned that raw material costs could continue at higher than anticipated
trend levels in 2005 and that price increases achieved could lag cost
increases. The outlook also anticipates that ASD will continue
to maintain an acceptable liquidity profile, both from an internal
and external perspective, and will be able to successfully extend
the European and US receivable programs, which have expiry dates
of May 2005 and September 2005 respectively.
Further margin improvement and sustainability of operating margins in
the 15% or better range (after corporate and other expense),
further de-leveraging, and continued free cash flow generation
could favorably impact the outlook and rating over time. The outlook
could be adversely impacted by a re-leveraging of the company,
particularly for share repurchases, institution of a new strategy
that would materially change the ability to be free cash flow generative
or significantly divert cash flow to shareholders, or by adverse
developments in ASI's asbestos exposure or payment profile.
ASD has advised that with debt at a level viewed as appropriate for the
company, roughly $1.5 billion on a book basis,
it intends to employ its cash to pay the recently instituted dividend
(roughly $128 million per annum) and increase its share buyback
program. Given the seasonal nature of the company's business
and uncertainty as to any moderation in raw material cost trends,
the timing of share repurchases, together with adjusted debt levels
(accounts receivable, net asbestos liability, unfunded pension
position and operating lease exposure) will be among the factors Moody's
continues to follow with respect to the outlook and rating.
Moody's notes that ASD and other manufacturers involved in the bathroom
and kitchen fitting and fixtures business in Europe are the subject of
various investigations by the EU, the Antitrust Division of the
U.S. Department of Justice and the French Competition Counsel.
Moody's also notes that the company and others involved in the fittings
and fixtures business in the United States have been named in a lawsuit
concerning price fixing in the United States. Moody's expects
that such investigations will be protracted and will monitor developments
as they occur.
The operating and financial strengths notwithstanding, concerns
to the rating remain. American Standard is party to a number of
lawsuits regarding asbestos, with 125,317 pending claims at
December 31, 2004. The claims relate to products such as
boilers and railroad products, predominately brake shoes,
which are encapsulated in the braking system. The company's
experience over a 15 year period to date has resulted in the resolution
of 25,389 claims and made approximately $51 million in settlement
payments. Based upon an independent analysis of its position,
which estimated a $699 million liability for pending and potential
future claims through 2055, ASD took a net $307 million pre-tax
charge in 2004 to increase its asbestos liability to $699 million
from $83 million. While ASI's expectation is that
potential exposure can be accommodated without undue impairment to its
financial condition, initiatives continue to exist to try to deal
with asbestos on a federal basis, and several jurisdictions have
taken steps to tighten the requirements for cases that can be brought
before the courts, Moody's continues to see a high degree
of uncertainty continuing in this area. ASD's management
of its overall liquidity position and readily available liquidity maintained
will be a factor in Moody's ongoing review of this exposure.
Ratings assigned are:
American Standard Inc.: Baa3 to $200 million senior
unsecured notes due 2015 guaranteed by ASD and ASII
Ratings affirmed are:
American Standard Inc.: Baa3 senior notes and Eurobonds,
all as guaranteed by ASD and ASII, (P)Baa3 senior unsecured shelf
guaranteed by ASD and ASII
These securities will be sold in privately negotiated transactions without
registration under the Securities Act of 1933 (the Act) under circumstances
reasonably designed to preclude a distribution thereof in violation of
the Act. The issuance has been designed to permit resale under
Headquartered in Piscataway, New Jersey, American Standard
Companies had revenues of $9.5 billion in 2004. Gross
revenues at American Standard Inc., were $4.8
billion, while American Standard International Inc. reported
gross revenues of $5.1 billion
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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