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I AGREE
06 Feb 2017
New York, February 06, 2017 -- Moody's Investors Service, ("Moody's") today
assigned an A2 rating to new senior unsecured notes being offered by Estee
Lauder Companies Inc. ('Estee Lauder'). The
company intends to use net proceeds from the offering for general corporate
purposes, to refinance the $300 million of 5.55%
senior notes that come due May 15, 2017 and reduce commercial paper
borrowings as it matures. The rating outlook is stable.
The announced bond offering will be issued in three tranches including
a three-year, a 10-year and a 30-year fixed
rate notes. Pricing and tranche sizes have not been finalized.
Ratings assigned:
New senior unsecured fixed rate notes due 2020 at A2
New senior unsecured fixed rate notes due 2027 at A2
New senior unsecured fixed rate notes due 2047 at A2.
The rating outlook is stable.
RATINGS RATIONALE
Estee Lauder's A2 senior unsecured and Prime-1 short-term
debt ratings reflect the company's leading market position in prestige
beauty supported by a portfolio of well recognized brands. The
company's conservative financial policies support strong credit metrics
with good cash flow generated from its geographically diverse portfolio.
Further, the company's multi-year reorganization plan will
deliver additional cash flow, while improving financial and operating
flexibility. Moody's expects this flexibility, coupled with
Estee Lauder's distribution capabilities and strong track record of innovation,
to continue to drive revenue growth at or above the industry average.
Cash flow remains healthy through economic cycles, providing flexibility
to re-invest in a range of economic environments. Products
are somewhat discretionary and vulnerable to consumer spending pullbacks,
but the company is resilient in economic downturns as cyclical revenue
losses, if any, are manageable. The rating is tempered
by the discretionary and highly competitive prestige beauty category and
limited product diversification as it focuses exclusively on the beauty
segment.
The stable rating outlook reflects Moody's view that Estee Lauder will
continue to grow revenue and generate a healthy level of cash relative
to its overall funded debt. Moody's expects share repurchases and
acquisitions to be funded from free cash flow and modest additional debt.
Estee Lauder's ratings could be upgraded if the company maintains its
strong global franchise of beauty brands, and sustains strong profitability
and cash flows. Additionally, a commitment to improve and
sustain lower leverage and maintain solid interest coverage would be necessary
for an upgrade. Specifically, Estee Lauder would need to
maintain EBIT margins above 20% and retained cash flow to net debt
above 40% before Moody's would consider an upgrade.
The ratings could be downgraded if the value of the company's global franchise
deteriorates, or the company adopts a more aggressive financial
policy that meaningfully increases leverage. Specifically,
Estee Lauder's ratings could be downgraded if EBIT margins fall below
10% or retained cash flow to net debt is sustained below 30%.
Estee Lauder Companies Inc. ("Estee Lauder"), headquartered
in New York City is one of the world's leading manufacturers and marketers
of beauty products. The company's products are sold in over 150
countries and territories. Products are sold across four major
beauty categories including makeup, skin care, fragrance,
and hair care. Lauder family members, subject to a Stockholder's
Agreement, control approximately 87% of the company's voting
power largely through ownership of higher voting Class B shares.
The company generates about $11.3 billion in annual sales.
The principal methodology used in these ratings was Global Packaged Goods
published in January 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
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,
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each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
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disclosures in relation to the provisional rating assigned, and
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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
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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.
Chedly Louis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
No Related Data.
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