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10 Mar 2010
New York, March 10, 2010 -- Moody's Investors Service stabilized Mohawk Industries, Inc.'s
("Mohawk") rating outlook due to our expectation that demand
has likely stabilized for residential floor coverings and that Mohawk's
credit metrics will likely improve in 2010. The speculative grade
liquidity rating was upgraded to SGL 1 from SGL 2 and the Ba1 corporate
family rating and probability of default ratings were affirmed as was
the Ba2 unsecured notes rating.
The combination of cost cutting initiatives and a gradual improvement
in demand for residential floor covering led to strong cash flow generation
after March 2009 and higher fourth quarter earnings. "With
the generation of more than $550 million of free cash flow in 2009
and our expectation of at least $250 million of free cash flow
in 2010, we expect Mohawk to repay most, if not all,
of the $500 million notes due in January 2011 with cash,
resulting in minimal drawn downs on its revolver, if any,"
said Kevin Cassidy, Senior Credit Officer at Moody's Investors
The stable outlook reflects Moody's belief that residential demand
for floor covering, which is where about 70% of revenue is
generated, has shown signs of stabilizing. Moody's
expects commercial demand for floor covering to remain pressured throughout
2010, although the velocity of the decline will likely moderate
in the latter half of 2010. Moody's expects 2010 revenue
to range between $5.2 billion and $5.6 billion
and adjusted EBITDA to be between $600 million and $700
million. The stable outlook incorporates Moody's expectation
that the first quarter will likely show seasonal weakness, but that
Mohawk's liquidity profile will remain strong.
The Ba1 corporate family rating reflects Mohawk's leading market
share in the carpet segment, floor tiling segment and the Unilin
(laminate) segment, consistently strong cash flow and its generally
conservative financial policies. The corporate family rating also
reflects the size of the company, which is over $5.3
billion, despite a 30% decrease since the recession started
in December 2007. Mohawk's improved cost structure should
reduce earnings volatility and lead to higher earnings when demand improves.
These factors help offset the lower levels of discretionary consumer spending,
continuing uncertainty in the housing market and declining demand for
commercial floor covering. Nonetheless, Moody's expects
Mohawk's credit metrics to improve in 2010 as residential demand
improves, debt is reduced and Mohawk increases prices to offset
higher raw material costs.
The upgrade in the liquidity rating to SGL 1 reflects Mohawk's very
good liquidity profile highlighted by more than $530 million of
cash (about 1/3 overseas), access to a $600 million 4 year
ABL revolving credit facility and strong annual operating cash flow between
$400 million and $500 million before working capital changes.
Mohawk's liquidity is further supported by the lack of dividends
or share repurchases and no financial covenants, provided availability
under the revolver remains above $90 million. The principal
constraint to Mohawk's liquidity is the $500 million maturity
in January 2011 and the acceleration of its revolver's maturity
date if the company doesn't repay, refinance, defease
or adequately reserve for the January 2011 notes and the April 2012 notes
three months prior to maturity. Mohawk's liquidity is also
constrained by the seasonality of its cash flows, especially in
Q1 where cash has historically been consumed by working capital and in
Q4, when the majority of cash is generated.
Speculative Grade Liquidity rating to SGL-1 from SGL-2;
Corporate Family Rating at Ba1;
Probability of Default Rating at Ba1;
$500 million 5.75% senior unsecured notes,
due January 15, 2011 at Ba2 (LGD 5, 71%);
$400 million 7.20% senior unsecured notes,
due April 15, 2012 at Ba2 (LGD 5, 71%); and
$900 million 6.125% senior unsecured notes,
due 2016 at Ba2 (LGD 5, 71%)
Moody's subscribers can find further details in the Mohawk Industries
Credit Opinion published on Moodys.com.
The last rating action was on September 14, 2009, where Moody's
downgraded the unsecured notes to Ba2 following the company's announcement
that it entered into a $600 million ABL revolving credit facility
and affirmed all other ratings.
The principal methodology used in rating Mohawk was Moody's Global Consumer
Durables Goods methodology published in August 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 rating Mohawk can also be found in the Rating Methodologies
sub-directory on Moody's website.
Headquartered in Calhoun, Georgia, Mohawk Industries is a
leading producer of floor covering products for residential and commercial
applications in the U.S. Mohawk products includes brands
such as Mohawk, Unilin, Karastan, Ralph Lauren,
Lees, Bigelow, Dal-Tile and American Olean.
Revenue for the year ended December 31, 2009, approximated
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's stabilizes Mohawk's rating outlook; SGL upgraded
Corporate Finance Group
Moody's Investors Service
No Related Data.
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