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Rating Action:

Moody's affirms ABB's A2/P-1 ratings, stable outlook

26 Sep 2017

Approximately $7.17 billion of rated debt affected

Frankfurt am Main, September 26, 2017 -- Moody's Investors Service today affirmed the A2 long-term issuer rating of ABB Ltd. (ABB), the P-1 short-term issuer rating and the A2 rated debt instruments. The outlook remains stable.

A full list of affected ratings can be found at the end of this press release

RATINGS RATIONALE

Moody's has affirmed the ratings as leverage is only going to change moderately to about 2.2x (fiscal year end 2018 estimate) from 2.0x (at FYE 2016) pro-forma the acquisition of General Electric Company's Industrial Solutions (GEIS) business as well as the acquisition of B&R that has closed in July 2017. ABB will pay $2.6 billion and intends to fund the acquisition with a mix of debt and cash. GEIS' low operating EBITA margins of around 6% is only about half of that for ABB. The acquisition is a good strategic fit for ABB's activities in the US as it supports consolidation of the market, and strengthens ABB's position in the US. However, a successful turnaround of GEIS will be challenging to achieve and will come at a cost. Management, therefore, expects to spend slightly more than $400 million of restructuring and integration costs over a period of five years in order to fully reap benefits from synergies and to bring GEIS operating EBITA margin up to ABB group level.

ABB will put on hold its $3.0 billion share buyback programme, which will preserve liquidity and prevents a further weakening of its capital structure, offsetting the negative effects of the GEIS and the B&R acquisitions. Moody's expects adjusted debt to increase to $12.5 billion by the end of the first half of 2018, during which the acquisition is expected to close, from $10.75 billion as of end of June 2017. The cash and equivalent balance of $5.9 billion is expected to diminish over the same period by nearly $2.0 billion, largely owing to the cash-funded B&R acquisition, which closed in July 2017. ABB's liquidity profile remains strong, bolstered by its ability to generate sizeable free cash flows on a sustainable basis. Free cash flow that is applied to debt reduction rather than share buybacks should also support ABB's leverage to return to the level required to maintain its A2 rating (below 2.0x) within the next 18 months.

Apart from the integration of GEIS and B&R management has to address ongoing challenges including (1) the delivery of ongoing cost savings in the range of 3-5% of annual cost of sales (about $1.0 billion) in order to offset pricing pressure; (2) incremental operating improvements in its Power Grids division to maintain on a sustainable basis profitability levels within the targeted margin corridor of 10-14% (H1 2017: 10.0%). ABB's white collar productivity programme targets annual cost savings of $1.3 billion by year end 2017 and the reduction of net working capital has resulted in working capital releases of around $1.0 billion in 2015 and 2016. Moody's expects a reversal of previous working capital releases as the company starts growing its revenues again.

RATIONALE FOR STABLE OUTLOOK

The outlook is stable and reflects the solid free cash flow generating ability of ABB with annual free cash flows averaging around USD1.0 billion annually between 2012-2016.

WHAT COULD CHANGE THE RATING UP / DOWN

Ratings could be downgraded if (1) EBITA margin were less than 12%; (2) FCF/debt less than 10%; and (3) Debt/EBITDA of more than 2.0x for extended periods. Moody's could upgrade the rating if (1) EBITA margin were higher than 15%; (2) FCF/debt in excess of 20%; and (3) Debt/EBITDA less than 1.5x.

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.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: ABB Ltd.

.... LT Issuer Rating, Affirmed A2

.... ST Issuer Rating, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed A2

..Issuer: ABB Holdings, Inc.

.... BACKED LT Issuer Rating, Affirmed A2

..Issuer: ABB Asea Brown Boveri Ltd.

.... LT Issuer Rating, Affirmed A2

..Issuer: ABB Capital B.V.

.... BACKED Senior Unsecured MTN, Affirmed (P)A2

..Issuer: ABB Finance (Australia) Pty Limited

.... BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2

..Issuer: ABB Finance (USA) Inc

.... BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2

..Issuer: ABB Finance B.V.

.... BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2

.... BACKED Senior Unsecured MTN, Affirmed (P)A2

.... BACKED Commercial Paper, Affirmed P-1

.... BACKED Other Short Term, Affirmed (P)P-1

..Issuer: ABB Treasury Center (USA) Inc.

.... BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A2

.... BACKED Commercial Paper, Affirmed P-1

..Issuer: Thomas & Betts Corporation

....Senior Unsecured Regular Bond/Debenture, Affirmed A2

Outlook Actions:

..Issuer: ABB Ltd.

....Outlook, Remains Stable

..Issuer: ABB Holdings, Inc.

....Outlook, Remains Stable

..Issuer: ABB Asea Brown Boveri Ltd.

....Outlook, Remains Stable

..Issuer: ABB Capital B.V.

....Outlook, Remains Stable

..Issuer: ABB Finance (Australia) Pty Limited

....Outlook, Remains Stable

..Issuer: ABB Finance (USA) Inc

....Outlook, Remains Stable

..Issuer: ABB Finance B.V.

....Outlook, Remains Stable

..Issuer: ABB Treasury Center (USA) Inc.

....Outlook, Remains Stable

..Issuer: Thomas & Betts Corporation

....Outlook, Remains Stable

ABB is one of the largest suppliers of power and automation technologies worldwide, with consolidated revenue of $33.8 billion in 2016 ($35.5 billion in 2015). Following a reorganisation (effective January 2017), ABB has four divisions: Power Grids (approximately 30% of revenue as of fiscal year end 2016), Electrification Products (28%), Robotics and Motion (23%) and Industrial Automation (19%). The group is headquartered in Zurich, Switzerland, and has approximately 132,000 employees. ABB Ltd., the parent company, is listed in Zurich, Stockholm and New York, with a 10.71% stake held by the Swedish investment company Investor AB (Aa3 stable) and 5.34% by Cevian Capital (unrated).

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Martin Kohlhase
VP - Senior Credit Officer
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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