New York, September 08, 2020 -- Moody's Investors Service ("Moody's") assigned
a Baa2 rating to Johnson Controls International plc's ("Johnson Controls")
new senior unsecured (green bond) notes issuance. The issuances
do not impact other ratings of Johnson Controls, including the existing
Baa2 senior unsecured and P-2 short-term ratings.
The ratings outlook is stable.
RATINGS RATIONALE
Johnson Controls' Baa2 senior unsecured debt ratings reflect the company's
significant scale with a diverse customer base and end markets in HVAC,
fire and security products. The company's product portfolio
is complemented by a large service offering, which augments revenue
and reduces volatility. Johnson Control's credit profile
is also supported by improvements in the company's cost base,
which Moody's expects will continue to aid improving margins and
cash flow generation over the next few years, despite recent revenue
declines due to the effects of COVID in 2020. However, ratings
also take into consideration relatively high debt levels and ensuing leverage,
recently elevated in April 2020 through short-term debt offerings
to bolster liquidity during the COVID downturn. Debt-to-EBITDA
was close to 3.5x as of June 2020, which is higher than Moody's
long range expectation of 3x or below and places greater importance on
the company to perform well and repay debt from its substantial cash holdings
when operating conditions improve in 2021. As well, the ratings
reflect event risk surrounding the changing HVAC and building products
competitive landscape.
Johnson Controls intends to allocate an amount equal to the net proceeds
from the sale of the notes to a portfolio of new or existing Eligible
Green Projects.
The stable ratings outlook reflects Moody's expectation that JCI will
sustain EBITA margins in excess of 10% in fiscal year 2020 (ending
September) despite weaker revenue levels in the year, improving
towards the mid-teens level in FY 2021 as business conditions improve.
Moody's expects free cash flow to exceed $500 million annually
over this period, and that the company will use cash reserves to
repay debt as necessary to restore debt-to-EBITDA to the
high-2x range in FY 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded if Johnson Controls achieves EBITA margins in
the upper teen percent range, free cash flow well in excess of $1
billion annually, and debt-to-EBITDA that is sustained
close to 2x or lower. The maintenance of share repurchases within
free cash flow levels generated annually would be an important factor
to support an upgrade.
Ratings could be downgraded if EBITA margins are sustained below 10%,
or if the company cannot generate free cash flow of at least $500
million annually. Ratings could also be downgraded in the event
of a material increase in debt to fund sizeable acquisitions or increased
amounts of share repurchases, resulting in debt-to-EBITDA
that will be sustained above the low-3x range.
The following summarizes today's rating actions:
Assignments:
..Issuer: Johnson Controls International plc
....Senior Unsecured Regular Bond/Debenture,
Assigned Baa2
Johnson Controls International plc (NYSE: JCI), headquartered
in Cork, Ireland, through its operating subsidiaries is a
leading global provider of services and solutions to optimize energy and
operational efficiencies of buildings, along with fire protection
and security products and services across global commercial, institutional
and government markets. JCI's consolidated revenue was $22.6
billion for the last twelve months ended June 30, 2020.
The principal methodology used in this rating was Manufacturing Methodology
published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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.
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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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
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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
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Please see www.moodys.com for any updates on changes to
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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.
David Berge, CFA
Senior Vice President
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
Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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