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Rating Action:

Moody's assigns A2 to Kimberly-Clark's note offering; outlook stable

08 Sep 2020

New York, September 08, 2020 -- Moody's Investors Service, ("Moody's") assigned an A2 rating to $600 million of senior unsecured notes offered by Kimberly-Clark Corporation ("Kimberly-Clark"). Moody's expects that net proceeds from the offering, together with borrowings under the company's commercial paper program will be used to fund the proposed acquisition of Softex Indonesia, announced on Friday, and to pay for expenses. The rating outlook is stable.

Moody's commented on Friday that the proposed acquisition of Softex Indonesia ("Softnex") for $1.2 billion is credit negative for Kimberly-Clark, but that it does not affect the company's A2 rating or stable outlook. On a pro-forma basis Moody's estimates that the largely debt funded acquisition will weaken Kimberly-Clark's retained cash flow to net debt ratio to 24% from 27.9% and will raise its debt to EBITDA to 2.1x from 1.9x for the last twelve months ended June 30, 2020. That said, Moody's expects the company's credit metrics to return to pre-acquisition levels over the next 12-18 months through a combination of earnings growth and debt repayment. The rating agency also expects that Kimberly Clark will manage shareholder distributions to maintain its conservative financial profile. The transaction will add additional scale and diversity to Kimberly Clark's business in Asia Pacific, where Moody's estimates that it generates about 17-18% in sales. Management expects the acquisition to close in the fourth quarter of 2020.

The following ratings/assessments are affected by today's action:

New Assignments:

..Issuer: Kimberly-Clark Corporation

....Senior Unsecured Notes, Assigned A2

RATINGS RATIONALE

Kimberly-Clark's A2 senior unsecured and Prime-1 short-term debt ratings reflect the company's large global scale and strong market position in paper, health and hygiene related consumer products. The ratings also reflect the company's strong operating cash flow, and senior management's public commitment to the single-A rating category.

The ratings are supported by Kimberly-Clark's portfolio of strong brands in stable consumer categories and its global distribution capabilities. Effective cost management and restructuring program will continue to drive solid and improving profitability. Generating good organic growth and potential pricing pressure and volume risk from private label and other competitors will remain challenges. In addition, limited product diversification, with high concentration of sales and profits within developed markets, are rating constraints. The company's track record of aggressive shareholder distributions, which has included spin-offs and debt-funded share repurchases, represents decapitalization event risk.

The consumer packaged goods industry has relatively low environmental and social risk. However, the company has various commitments to lessen its overall impact on the environment with goals to reduce the use of wood fiber sourced from natural forests by 50%, increase net recycling value in its operations by 10% every year while avoiding landfilling of facility waste and reduce greenhouse gas emission through LEAN energy and by switching to lower carbon emitting fuels. Further, Moody's views Kimberly-Clark's financial polices as conservative. Most of Kimberly-Clark's board members are independent directors and have extensive consumer product/manufacturing experience. That said, Moody's views the lack of independence of the CEO and Chairman of the Board, given that both roles are held by the same person, as a governance weakness. Kimberly-Clark is a widely held public company.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The stable rating outlook reflects Moody's expectation that Kimberly-Clark will continue to generate stable-to-growing cash flow through modest revenue growth, cost reductions, and effective management of commodity input price volatility. The company will manage shareholder distributions to maintain a conservative financial profile.

Kimberly-Clark's ratings could be upgraded if improved organic growth and operating profitability coupled with a commitment to maintain stronger credit metrics leads to retained cash flow-to-net debt sustained above 30%.

Kimberly-Clark's ratings could be downgraded if operating performance weakens or if financial policies become more aggressive. Retained cash flow to net debt sustained below 20% could also result in a downgrade.

The principal methodology used in this rating was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Kimberly-Clark Corporation, headquartered in Irving, Texas, is a global producer of branded consumer goods with key product segments that include: personal care (roughly 49% in revenues), consumer tissue (32%) and commercial safety products (K-C Professional) & other (19%). Some of the company's well-known brands include Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex and Kleenex. The company generates about $18.8 billion in annual revenue.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Chedly Louis
VP - Senior Credit Officer
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

John E. Puchalla, CFA
Associate Managing Director
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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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 JPY250,000,000.

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