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Rating Action:

Moody's assigns Baa2 ratings to Johnson Controls' new Euro-denominated senior unsecured notes

09 Sep 2020

New York, September 09, 2020 -- Moody's Investors Service ("Moody's") assigned Baa2 ratings to Johnson Controls International plc's ("Johnson Controls") new Euro-denominated senior unsecured notes due 2027 and 2032. 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 Controls' 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.

Proceeds from the notes issuances will be used general corporate purposes, including the repayment or redemption of near-term indebtedness, with €750 million of notes maturing in December 2020.

The stable ratings outlook reflects Moody's expectation that Johnson Controls 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. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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

These ratings are 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.

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

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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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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 JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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