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I AGREE
26 Mar 2018
Approximately $600 million of debt affected
New York, March 26, 2018 -- Moody's Investors Service, ("Moody's") affirmed
the ratings of SPX FLOW, Inc. (FLOW), with the Corporate
Family Rating (CFR) at Ba3, Probability of Default Rating (PDR)
at Ba3-PD, Speculative Grade Liquidity (SGL) rating at SGL-3
and senior unsecured at B1. The rating outlook is changed to stable
from negative, reflecting expectation for continued performance
improvement in 2018.
RATINGS RATIONALE
The affirmation of FLOW's ratings reflect expectations for improving
operating performance due to stronger end market demand. Moody's
anticipates 3% organic revenue growth in 2018 after two years of
contraction. Healthy orders and backlog at year-end 2017
provide good revenue visibility for 2018 as some 80% of the $998
million backlog is expected to be converted to revenue. FLOW's
realignment program, including headcount reduction and factory consolidation
initiatives, has been substantially completed. As a result,
we expect the company's EBITA margin to meaningfully improve in
2018, by around 150 basis points. FLOW reduced funded debt
by $213 million in 2017, improving debt to EBITDA to 4.6
times from 5.4 times in 2016 (on a Moody's adjusted basis).
We expect FLOW to continue focusing on strengthening the balance sheet
and reducing debt with internally generated cash at least through 2018.
The stable rating outlook reflects expectations for earnings growth and
debt reduction going forward, which are supported by FLOW's recently
announced capital allocation plan. The recent surge in new orders
and backlog provides good revenue visibility in 2018. The stable
outlook also incorporates the view that the 25% tariff on steel
imports will not materially impact FLOW's operations.
The SGL-3 liquidity rating reflects expectations for adequate liquidity.
In 2017, FLOW generated $184 million of free cash flow (after
capital expenditures and dividends), all of which were used to repay
debt. Moody's expects free cash flow of about $100 million
in 2018. Together with the company's $264 million
cash balance on hand, Moody's anticipates FLOW's liquidity
needs to be largely funded with cash generated internally. FLOW
also has a secured $450 million revolving credit facility which
expires in 2020. However, although heavy borrowing not anticipated,
the company's revolving credit facility access could be limited
due to more restrictive financial maintenance covenant tests, as
the company opted out of the covenant relief period in Q1 2018.
The maintenance covenant requires that FLOW to maintain a maximum consolidated
leverage ratio of 4.0 times and a minimum interest coverage ratio
of 3.5 times.
FLOW's ratings could be upgraded if organic revenue growth were
to be sustained and debt to EBITDA expected to be below 3.5 times
and free cash flow to debt above 15%.
The ratings could be downgraded, if credit metrics were anticipated
to deteriorate, particularly if debt to EBITDA is expected to approximate
or exceed 4.5 times or EBITA to interest was expected to be sustained
below 2.5 times (all ratios on a Moody's adjusted basis).
Also, a deterioration in liquidity or an inability to improve margins
could result in a ratings downgrade. Longer term, the company's
growth will likely include acquisitions as it seeks to expand product
offerings and build scale. Although not anticipated over the intermediate
term, meaningful debt-funded acquisitions and/or a more aggressive
financial policy materially weakening FLOW's credit metrics would
also pressure the ratings.
The principal methodology used in these ratings was Global Manufacturing
Companies published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
SPX FLOW, Inc., headquartered in Charlotte, NC,
is a global provider of flow control solutions to a wide variety of end
markets. The company operates in three segments: Food and
Beverage, Power and Energy, and Industrial. FLOW is
a spin-off from SPX Corporation with annual revenue of approximately
$2.0 billion in 2017.
The following summarizes today's rating action:
Moody's affirmed the following ratings:
.. Issuer: SPX FLOW, Inc.
.... Corporate Family Rating, Affirmed
Ba3
.... Probability of Default Rating,
Affirmed Ba3-PD
.... Speculative Grade Liquidity Rating,
Affirmed SGL-3
.... Senior Unsecured Regular Bond/Debenture,
Affirmed B1 (LGD5)
Outlook:
.. Issuer: SPX FLOW, Inc.
.... Outlook, Changed to Stable from
Negative
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For ratings issued on a program, series or category/class of debt,
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Paul Aran
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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