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Rating Action:

Moody's affirms Ingersoll-Rand's Baa2 senior unsecured and P-2 short-term commercial paper ratings

26 Feb 2019

Approximately $4 billion of rated debt affected

New York, February 26, 2019 -- Moody's Investors Service ("Moody's") affirmed all debt ratings of Ingersoll-Rand Global Hldg Co. Ltd ("IR-Global Holding"), Ingersoll-Rand Company and Ingersoll-Rand Luxembourg Finance S.A. including the senior unsecured at Baa2 and the short term rating at P-2. All of these entities are direct or indirect subsidiaries of Ingersoll-Rand Plc ("Ingersoll-Rand", or "IR"). Their rating outlooks are stable.

RATINGS RATIONALE

Ingersoll-Rand's Baa2 long-term ratings reflect the sizable $15.7 billion revenue base, strong brand recognition in its core markets, geographic diversity (over a third of revenues generated abroad) and ample cash flow generated from operations (approximately $1.5 to $1.8 billion annually). The company also benefits from distinct revenue streams that are each exposed to different business cycles. Ingersoll-Rand operates in businesses ranging from Heating, Ventilation and Air Conditioning ("HVAC") and its transport refrigeration business that comprises close to 80% of total revenues to its industrial business that encompasses compression technologies and fluid control products that serve a range of industrial end-markets. Additionally, aftermarket-related revenues comprising approximately one-third of the company's total revenues provide a recurring revenue stream. At the same time, the ratings reflect the cyclicality in the company's end-markets and short-term cost headwinds.

Financial leverage will increase somewhat following the proposed sizable acquisition of Precision Flow Systems ("PFS"), a provider of fluid management systems for approximately $1.45 billion. Assuming the transaction is largely debt-financed, pro forma debt/EBITDA will increase by approximately half a turn to an estimated 2.6x from 2.1x for the 2018 fiscal year, which is within Moody's expectations for the Baa2 rating. Moody's does not anticipate debt reduction as the company is likely to accelerate growth by capitalizing on acquisition opportunities.

PFS is expected to augment the geographic footprint, end-market diversity and increase the revenue scale of IR's existing industrial business by approximately 12%. According to IR, it paid an approximate 11x 2019E EBITDA multiple net of synergies.

As part of IR's ongoing capital allocation strategy, it is deploying capital towards internal growth as well as acquisitions. However, this activity has been against a framework of more aggressive shareholder remuneration in recent years. It is our expectation that dividends and repurchases will continue to constitute a meaningful portion of cash generation. Share repurchases and dividends totaled $1.4 billion of cash outflows in 2018.

Through 2020, Moody's anticipates IR will grow revenue in the low to mid-single digit range due to ongoing positive order trends in both its HVAC and industrial segments. Moody's also anticipates the positive momentum in the company's underlying fundamentals to improve with free cash flow/debt restoring to the mid-teens level by the end of 2021 after declining to the 8% range pro forma for the PFS acquisition. EBITDA margins have been on an upward trajectory and the acquisition of PFS should contribute to margin improvement due to a favorable higher margin mix. IR is expected to continue to manage through headwinds of tariffs and raw material cost inflation, particularly steel, through a combination of pricing and productivity measures as well as restructuring actions.

From an environmental perspective, IR is focused on actions to reduce global carbon emissions in its HVAC business, as well as the conservation of food through its transport refrigeration business. An added focus on water quality and precision irrigation and measurement will be added to the portfolio via PFS. Over the longer-term the likelihood is that the company will benefit from these actions, as well as the long standing practices and approach on sustainability.

The stable outlook is based on Moody's expectation of continued growth in IR's Climate and Industrial segments supported by positive order trends. The outlook also anticipates that the company will prudently balance acquisition activity with shareholder remuneration such that debt/EBITDA is maintained at its historical norm of below 3.0x and reported free cash flow (after dividends) exceeds $500 million annually.

The ratings could be upgraded if the company's top line grows organically through positive end-market fundamentals with debt/EBITDA trending towards and sustained at the low 2.0x level and FCF/debt improves to and is sustained at approximately 15% post the acquisition of the PFS business. In addition, EBITA/interest coverage sustained at over 7.0x and free cash flow (after dividends) exceeding $900 million annually would also support upward ratings movement.

The ratings could be downgraded if the company meaningfully increases financial leverage in order to fund shareholder remuneration and/or acquisitions such that debt/EBITDA increases to and is sustained above 3.0x. Other factors such as a significant increase in top-line volatility or an erosion in margins with debt-to-EBITDA weakening to over 3.0x, annual free cash flow falling below $450 million, EBITA/interest coverage below 6.0x and FCF/debt falling to under 7% could also lead to ratings pressure.

Affirmations:

..Issuer: Ingersoll-Rand Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Ingersoll-Rand Global Hldg Co. Ltd

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Ingersoll-Rand Luxembourg Finance S.A.

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

Outlook Actions:

..Issuer: Ingersoll-Rand Company

....Outlook, Remains Stable

..Issuer: Ingersoll-Rand Global Hldg Co. Ltd

....Outlook, Remains Stable

..Issuer: Ingersoll-Rand Luxembourg Finance S.A.

....Outlook, Remains Stable

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.

Ireland-based Ingersoll-Rand Plc (Ingersoll-Rand) is a global manufacturer focused on climate systems -residential and commercial HVAC systems and transport temperature control solutions - and industrial products - compressed air systems, material handling systems, fluid management equipment and golf and utility vehicles. The company reported revenues of approximately $15.7 billion for fiscal year end 2018. Pro forma for the PFS acquisition, revenues exceed $16.0 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 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.

Jadijhe (Gigi) Adamo
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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