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Global Credit Research - 05 Oct 2010
Approximately $2.9 billion in debt securities affected
New York, October 05, 2010 -- Moody's Investors Service ("Moody's") upgraded the long-term rating
of The Clorox Company ("Clorox") to Baa1 from Baa2, and affirmed
its Prime-2 short-term rating. The rating outlook
"The upgrade of Clorox's long-term ratings to Baa1
is based on the significant debt reduction and credit metric improvement
that the company has accomplished since its 2008 debt-financed
acquisition of Burt's Bees," says Moody's Vice
President and Senior Credit Officer Janice Hofferber. "This
improvement was driven by its demonstrated ability to generate strong
and stable earnings and free cash flow and management's priority to maintain
leverage at a moderate level," adds Ms. Hofferber.
The affirmation of Clorox's Prime-2 short term rating reflects
the company's adequate liquidity profile, characterized by
a sufficient committed bank facility relative to peak short term borrowing
needs and strong and stable cash flow generation. The company is
subject, however, to financial metrics in its committed bank
facility and some seasonality in its cash flows as well as a near-term
maturity in February 2011.
Moody's also said that Clorox's announcement on September
21, 2010 of its intention to sell its global Auto Care businesses
to an affiliate of Avista Capital Partners is not likely to affect its
ratings or outlook. Proceeds from the transaction, which
is expected to close by the end of calendar year 2010, are expected
to total approximately $780 million in cash and will be used to
repurchase shares. The Auto Care business accounts for around 4%
of 2010 revenue and 8% of earnings before interest and taxes.
Ratings of Clorox upgraded include the following:
- Senior unsecured debt to Baa1 from Baa2, and
- Senior unsecured shelf debt to (P)Baa1 from (P)Baa2.
Ratings of Clorox to be affirmed include the following:
- Commercial paper at Prime-2
The outlook is stable
The rating reflects the company's leading market positions in most of
its midsized product categories, strong brand name recognition,
product innovation and steady, albeit low, revenue growth.
These factors are mitigated by the intense competition for global market
share growth, need to continually launch new products with their
inherent marketing and trade promotion requirements, the company's
concentration of revenue in the more mature U.S. market
and a limited number of large customers, and its exposure to volatile
raw material and energy prices. The rating also considers the company's
history of debt-financed share repurchases and acquisitions.
Moody's expects that rising commodity costs and a soft U.S.
economy could put pressure on Clorox's profit margins; however,
these developments will likely be offset by the company's pricing
flexibility and cost savings as well as potentially improved market share
relative to private label as price gaps narrow.
Given the recent rating action, an upgrade to A3 is unlikely in
the near-term. However, Moody's could change
Clorox's rating outlook to positive if the company generates continued
positive organic growth, improved profitability and cash flow while
maintaining conservative financial policies. In addition,
credit metrics would have to improve such that Retained Cash Flow-to-Net
Debt is sustained above 20% and Debt-to-EBITDA is
sustained below 2.0 times.
Ratings could come under downward pressure if the company's operating
performance and liquidity meaningfully deteriorated, or leverage
materially increased - most likely due to a leveraged acquisition
or share repurchase. Specifically, the ratings and/or outlook
could be lowered if Retained Cash Flow-to-Net Debt is sustained
below 15% and Debt-to-EBITDA is sustained above 3.0
The last rating action regarding Clorox was on January 14, 2010
when Moody's affirmed the company's Baa2 and Prime-2 debt
ratings and revised the outlook to positive from stable.
For additional information, please refer to Moody's Credit Opinion
on Clorox available on www.moodys.com.
The principal methodology used in rating The Clorox Company were the Global
Packaged Goods Industry methodology published in July 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
The Clorox Company ("Clorox"), based in Oakland, California,
is a leading producer of household products. With revenues of approximately
$5.5 billion for the fiscal year ending June 30, 2010,
Clorox has a diverse portfolio of very well known brands, including
Clorox bleach and cleaning products (Pine-Sol, S.O.S.,
and Liquid-Plumr), Burt's Bees natural personal care products,
Armor All auto-care products (to be sold), Fresh Step and
Scoop Away cat litters, Kingsford charcoal briquettes, Hidden
Valley and K.C. Masterpiece dressings and sauces,
Brita water-filtration systems, and Glad trash bags and containers.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information, confidential
and proprietary Moody's Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Janice Hofferber, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Clorox's ratings to Baa1
250 Greenwich Street
New York, NY 10007
No Related Data.
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