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12 Feb 2009
Approximately $4 billion of debt affected
New York, February 12, 2009 -- Moody's Investors Service affirmed the Baa1 long-term and
Prime-2 short-term ratings of Ingersoll Rand Company Limited
(Ingersoll) but changed the outlook to negative from stable.
The change in outlook to negative reflects Moody's expectation that
the severe downturn in Ingersoll's key end markets -- particularly
US residential and non-residential construction, refrigerated
trucking, and the commercial refrigeration market -- will result
in a sizable reduction in the company's free cash generation,
and consequently prolong the pace at which the company will be able to
reduce the remaining $3 billion in debt taken on in connection
with the June 2008 acquisition of Trane, Inc. The downturn
will also result in Ingersoll's credit metrics remaining weak for
the Baa1 rating level until 2010. Prior to the current downturn,
Moody's had expected that Ingersoll's annual free cash flow
available for debt reduction would approximate $1 billion.
We had also anticipated that the company's credit metrics would
weaken subsequent to the acquisition, but that the rapid pace of
debt repayment would restore metrics to a level solidly supportive of
the Baa1 rating by the end of 2009. Moody's now anticipates
that the downturn in Ingersoll's markets will delay the originally
expected pace of debt reduction and improvement in credit metrics by approximately
a year. Debt levels and credit metrics could approximate levels
consistent with a Baa1 rating by 2010 if Ingersoll is successful at achieving
its cost reduction initiatives, and if the erosion in market conditions
do not result in more than the 8% to 9% decline in revenues
forecasted in the company's guidance for 2009.
Ingersoll's public estimates also call for profit margins to erode
significantly. However, the company is undertaking a number
of initiatives to moderate the impact of the downturn on its earnings
and cash generation, and position itself for more robust performance
should markets recover in 2010. These initiatives include:
achieving $180 million in additional synergies from the Trane acquisition;
harvesting $135 million in benefits from the restructuring program
implemented during late 2008, achieving 4% in overall productivity
improvements, and benefiting from the recent significant declines
in the cost of commodities.
Moody's notes that Ingersoll has a sound track record of improving
the productivity and operating efficiencies of its business units,
and the company should make considerable progress in implementing its
planned cost cutting initiatives. These factors, along with
the formidable competitive positions of Ingersoll's business units
should enable the company to approach the originally-anticipated
debt reduction and credit metrics by 2010.
As the company contends with the downturn, it will benefit from
adequate levels of liquidity. In Moody's view, the
principal potential liquidity requirements facing Ingersoll during the
coming 12 months include: approximately $1 billion in commercial
paper, the June maturity of its $754 million bridge loan;
the June maturity of approximately $200 million of Trane debt;
the February 2010 maturity of $261 million in Trane debt;
and the potential put of $307 million of senior notes in November
2009. The principal liquidity sources available to cover these
$2.5 billion in liquidity requirements include: $550
million in cash and $2.25 billion in committed credit facilities.
In addition, the company's annual free cash flow, although
lower than the originally-anticipated level of $1 billion,
will remain substantial.
The Baa1 rating could be vulnerable to downgrade if there are material
delays or shortfalls in Ingersoll's cost reduction initiatives,
or if market conditions become significantly more challenging than the
levels contemplated in the company's current operating plan.
To maintain the Baa1 rating during 2009, Moody's expects that
debt reductions funded by free cash generation would be well in excess
of $500 million and the ratio of EBITA/interest would be greater
than 3.0 times. Performance below these levels could result
in a downgrade.
Ratings affirmed include:
Ingersoll-Rand Company Limited: Baa1 senior unsecured and
Prime-2 short-term ratings.
Ingersoll-Rand Global Holding Co. Ltd.: Baa1
senior unsecured and Prime-2 short-term ratings.
Ingersoll-Rand Company: Baa1 senior unsecured and Prime-2
Ratings withdrawn include:
Ingersoll-Rand Financing I and II: (P)Baa3 preferred rating.
Ingersoll-Rand Financing III: (P)Baa2 preferred rating
Ingersoll-Rand European Financial Services Plc: Prime-2
Trane Co, (formerly American Standard Inc): Baa3 senior unsecured
rating. The debt of this acquired entity has not been guaranteed
or assumed by Ingersoll. In addition, Trane has ceased to
file stand alone financial statements. Therefore, Moody's
is no longer able to maintain a rating on the entity.
The last rating action on Ingersoll was a downgrade of the company's
senior debt rating to Baa1 from A3 on June 6, 2008.
The principal methodology used in rating Ingersoll was the Global Manufacturing
Methodology, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating Ingersoll can also be
found in the Credit Policy & Methodologies directory.
Ingersoll Rand Company Limited, headquartered in Hamilton,
Bermuda, is a leading producer of heating, ventilation and
air conditioning systems, stationary and transportation refrigeration
units, locks, air compressors and tools, and golf carts.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
Moody's affirms Ingersoll's Baa1 rating; outlook negative
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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