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
