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11 Feb 2011
Approximately $6.2 billion of rated long-term debt
New York, February 11, 2011 -- Moody's Investors Service affirmed Honeywell International Inc.'s
("Honeywell") A2 senior unsecured and Prime-1 short
term ratings and revised the rating outlook to stable from negative.
The action emphasizes the cumulative benefits of de-leveraging
from Honeywell's contributions to its pension plans, repayment
of maturing obligations from internal resources during 2010, as
well as expectations that Honeywell's prospective operating performance
should maintain its credit profile with sufficient cushion in the A2 rating
category. Notably, the company has announced an agreement
to divest its Consumer Products Group ("CPG") for $950
million with some $400 million of net proceeds expected to be contributed
to its pension plans. This is in addition to its contribution of
$1 billion made in January.
The A2 senior unsecured rating recognizes Honeywell's considerable
scale, ongoing profitability, consistent free cash flow generation
and moderate financial leverage. The company's business profile
includes a diversified portfolio of well positioned businesses with global
footprints. Following several years in which the company's
leverage increased from the combination of sizable share repurchases and
significant acquisitions, Moody's understanding of Honeywell's
capital strategy going forward includes a more conservative approach.
While funded debt levels may not appreciably change, debt/EBITDA
measures of leverage should decline through earnings growth over the intermediate
Honeywell's management processes focus on costs and productivity.
Those practices as well as restructuring actions have sustained segment
margins in the low-to-mid teen range and are likely to limit
the risk of any sharp decline in profitability or cash flows. This
is particularly so as the global recovery gains traction and spurs growth
across Honeywell's business units.
With free cash flow of circa $2.5 - $2.7
billion (net of dividends and before pension plan contributions) expected
over the coming year, Honeywell will have substantial financial
flexibility. Progressing towards lower leverage and maintaining
a solid operating margin and liquidity profile will be important elements
to preserve the A2 rating as the company continues with sizeable environmental
and asbestos liabilities. While balance sheet provisions have been
established for these, the timing and ultimate level of related
cash disbursements are more challenging to assess.
Aerospace, where the company has a strong franchise as an avionics
supplier, and Automation and Control, which should become
Honeywell's largest operating unit, are expected to be the
largest contributors to prospective results. Other units should
also generate stronger returns in 2011. Factors which could affect
future volumes include developments in the business jet segment and the
extent of inventory restocking by commercial airlines.
The stable outlook reflects an expectation of continued solid free cash
flow along with expanding revenue and earnings. Following debt
reduction and pension plan contributions in 2010 and announced for 2011,
metrics are more firmly positioned within the rating category.
Acquisition and share repurchase activity over the intermediate term is
expected to be modest with little or no impact to Honeywell's leverage.
Rating or outlook changes are unlikely over the near term. However,
they could be favorably affected should debt/EBITDA fall below and remain
appreciably under 2 times, if FCF/debt were sustained above 25%
and EBITA/interest exceeded 8 times. The rating or outlook could
also be favorably affected by meaningfully reduced uncertainty related
to environmental and asbestos exposure, and lowered potential for
aggressive share repurchases.
The rating could come under pressure should debt/EBITDA exceed 3 times,
sustained free cash flow to debt fall below 10%, retained
cash flow to debt be less than 25%, or if the operating margin
were expected to be under 10% for more than several quarters.
The rating or the rating outlook could also be lowered if a return to
more aggressive financial strategies is perceived.
Honeywell International Inc.
Senior Unsecured, A2
Senior unsecured shelf filing, (P)A2
Preferred shelf filing, (P)Baa1
Medium Term Note filing, (P)A2
Senior Unsecured, A2
The last rating action was on May 19, 2010 at which time ratings
were affirmed but the outlook was changed to negative.
The principal methodology used in rating Honeywell was Global Aerospace
and Defense published in June 2010. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Further information will be available in Honeywell's credit opinion
which will be posted on moodys.com.
Honeywell International Inc, based in Morris Township, New
Jersey, is a diversified company with interests in aerospace,
control technology, automotive products and specialty materials.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's revises Honeywell outlook to stable; A2 rating affirmed
250 Greenwich Street
New York, NY 10007
No Related Data.
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