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Global Credit Research - 03 May 2010
New York, May 03, 2010 -- Moody's Investors Service has assigned a Baa3 rating to Lennox International
Inc.'s ("Lennox") new $200 million, seven year,
senior unsecured notes. The ratings on the company's universal
shelf have been affirmed. The rating outlook remains stable.
The new senior unsecured notes will be used to repay outstanding indebtedness
under the company's $650 million revolving credit facility
and for working capital and other general corporate purposes, including
repurchases of shares of the company's common stock. The
unsecured notes carry the same guarantee as the company's existing
revolving credit facility, not rated by Moody's.
The assignment of a Baa3 rating to the company's proposed note issuance
and the affirmation of the senior unsecured shelf rating at (P)Baa3 reflects
the company's ability to sustain strong credit metrics during the economic
downturn as well as the anticipation of an improvement in operating performance
as revenue growth in a recovering economy supports margin expansion from
the company's leaner cost structure. Lennox's ability to manage
through the downturn, and thereby its low business volatility,
has been helped by its revenue and product mix. Lennox has historically
generated strong free cash flow and during the downturn applied it towards
strengthening its balance sheet as evidenced by debt reduction in 2009
and the curtailment of share repurchase activity. The Baa3 rating
anticipates that share repurchase activity will increase as the company's
end markets, operating performance, and cash flow improve,
but that the company will maintain a prudent financial profile supportive
of the Baa3 rating.
Lennox's stable outlook reflects the view that the company is well positioned
at the Baa3 rating level due to its low leverage, positive free
cash flow, and good competitive position. The rating is unlikely
to be upgraded in the near term given Lennox's size relative to its peers
and the concentration of its business in the United States thereby making
it highly reliant on one country's economic performance. The outlook
anticipates that the company will manage its cost structure and leverage
so as to meet its objective of maintaining debt leverage (debt to EBITDA)
between one and two times (as reported by the company). While acquisitions
could play some role in the company's growth initiatives, they are
not expected to be of sufficient magnitude to cause a permanent increase
in leverage above this target range. The rating outlook also reflects
the company's willingness to make difficult decisions in order to protect
its balance sheet, including its curtailment of share repurchases
in 2009, allocation of cash flow to debt repayment, and restructuring
..Issuer: Lennox International Inc.
....Senior Unsecured Regular Bond/Debenture,
Moody's last rating action on Lennox was April 30, 2010 when the
company's senior unsecured shelf rating was upgraded to (P)Baa3
The principal methodology used in rating Lennox International Inc.
was the Global Manufacturing Industry methodology, published in
December 2007 and available on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Headquartered in Richardson, Texas, Lennox International Inc.
is a leading global provider of climate control solutions. Revenue
for the year ended December 31, 2009 was approximately $2.9
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's assigns Baa3 to Lennox International's $200 million sr. unsecured notes
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
No Related Data.
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