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Rating Action:

Moody's upgrades Ecolab to A3

08 Oct 2021

New York, October 08, 2021 -- Moody's Investors Service (Moody's) upgraded the senior unsecured rating of Ecolab Inc. (Ecolab) to A3 from Baa1. The upgrade reflects proven resilience and good prospects in the company's well positioned portfolio, including good durability exhibited through COVID where roughly 80% of the portfolio selling to industrials, healthcare and life sciences performed well in 2020 and the first half of this year. The remaining 20% of the portfolio - the institutional segment, which includes lodging, restaurants and leisure -- was heavily impacted by COVID but is recovering, evident in second quarter 2021 results. However, the pace of further recovery will depend on the effects of the delta variant, the trend in new COVID cases and possible new COVID restrictions. The company's and subsidiaries Prime-2 short term ratings reflect excellent liquidity and are affirmed. Moody's also changed the outlook to stable from no outlook to Ecolab NL 11 B.V's commercial paper program. Ecolab's subsidiaries outlook for commercial paper programs remains stable. Ecolab's outlook on the ratings is changed to stable from positive.

"The upgrades also reflect the favorable navigation by management through COVID including restructuring actions, prudent liquidity management and continued strategic investments in R&D and new growth platforms, as well as the acceleration of investment in digital transformation to support positioning and growth in its key end markets," according to Joseph Princiotta, SVP at Moody's and senior analyst covering Ecolab. "Moody's expects earnings to continue to improve, helped by further recovery in US and global institutional activity, as well as industrial activity, and as price increases stay ahead of raw material inflation," Princiotta added.

Upgrades:

..Issuer: Ecolab Inc.

....Senior Unsecured Regular Bond/Debenture, Upgraded to A3 from Baa1

Affirmations:

..Issuer: Ecolab Inc.

.... Commercial Paper, Affirmed P-2

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Ecolab Lux 1 S.A R.L.

....Gtd Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Ecolab LUX 2 S.A R.L.

....Gtd Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Ecolab NL 10 B.V.

....Gtd Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: ECOLAB NL 11 B.V.

.... Gtd Senior Unsecured Commercial Paper, Affirmed P-2

Outlook Actions:

..Issuer: Ecolab Inc.

....Outlook, Changed To Stable From Positive

..Issuer: Ecolab Lux 1 S.A R.L.

....Outlook, Remains Stable

..Issuer: Ecolab LUX 2 S.A R.L.

....Outlook, Remains Stable

..Issuer: Ecolab NL 10 B.V.

....Outlook, Remains Stable

..Issuer: ECOLAB NL 11 B.V.

....Outlook, Changed To Stable From No Outlook

RATINGS RATIONALE

Ecolab's strong credit profile is supported by its leading market positions in the commercial cleaning and sanitation market, strong competitive positions in water treatment and process chemicals for industrial and institutional applications. Key business sectors, such as water treatment, institutional services and food and beverage enjoy significant barriers to entry; including on-site technical service requirements, patents and long-term customer relationships. Ecolab benefits from geographic, customer and end-market diversity, good long-term growth prospects, high profit margins, relatively steady EBITDA and strong free cash flow generation.

The strong credit profile is tempered by event risk associated with the company's ongoing M&A activity that occasionally stresses the balance sheet. In addition, with close to half of revenues outside the US, Ecolab faces foreign currency exposure. Competitive activity and portfolio churn are also modest negatives in the credit profile, mitigated by Ecolab's strong competitive position and barrier-to-entry attributes mentioned above. The ratings anticipate continued M&A activity focusing on adjacencies and bolt-on acquisitions to supplement organic growth. However, large debt-financed acquisitions cannot be ruled out in a post-COVID world or if market valuations of target companies improve.

We expect management will continue to adhere to its conservative balance sheet target of approximately 2.0x net leverage (unadjusted), and that management will continue to apportion its strong free cash flow between capex, dividends, share buybacks and acquisitions, while maintaining this leverage target through EBITDA growth alongside modest increases in debt.

The continued recovery in revenue and earnings post COVID, combined with growth in cash balances, helped improve the company's unadjusted net leverage metric to 2.0x on an LTM basis at June 30, 2021. Moody's adjusted gross leverage for the period was closer to 3.0x. However, the use of balance sheet cash to reduce debt in the recent liability management transactions improved the debt maturity profile and gross debt leverage metric.

Moody's expects earnings to continue to improve, helped by further recovery in US and global institutional activity, as well as industrial activity, and as price increases stay ahead of raw material inflation. Moody's expects adjusted gross leverage to trend favorably to the mid 2.0x range by year end, with further improvement possible next year as well.

ESG considerations

Environmental, social and governance factors in general, and environmental risks specifically, are not a key driver in today's rating action. However, Ecolab's environmental profile is more favorable than most in the industry as its programs and services target food safety, water treatment, cleaner industrial water, sanitized spaces and energy conservation to the food, healthcare, industrial and hospitality markets.

In 2020, Ecolab announced a new set of sustainability goals for 2030 targets for outcomes with its customers focused on water, climate, food, and health; and set targets for its own operations in the areas of water, climate, diversity and safety. Relevant to the latter categories, Ecolab buys, reformulates, and processes large quantities of commodity chemicals and sells specialty chemicals, and has 20 sites in the US subject to waste disposal site cleanup activities imposed by federal or state environmental authorities. Its energy targets include halving carbon emissions by 2030 and achieving net-zero carbon emissions by 2050. Its water targets include restoring greater than 50% of withdrawal in high risk watersheds and reducing water withdrawal by 40% per unit of production.

Governance is strong and reasonably transparent with an independent board and clear and consistent financial policies including targeted net leverage (unadjusted) of 2.0 times. The company is further advancing positive environmental and social impact by setting measurable sustainability goals, as highlighted above.

Ecolab Inc.'s liquidity is supported by significant cash balances as of June 30, 2021, with $1.4 billion in cash and cash equivalents and no borrowings under its $2.0 billion multi-year credit facility whose maturity was extended to 2026 in April. The $2.0 billion credit facility supports the company's Prime-2 (P-2) short-term rating on US and European commercial paper programs. As of June 30, 2021, the company had no outstanding commercial paper under either its U.S or Euro Programs. We expect Ecolab will generate significant positive free cash flow in 2021 and 2022 (defined as operating cash flow less capex and dividends).

The proceeds from the recent $300 million debt issuance of 34 year notes, together with balance sheet cash, were used to pay the $500 million in senior notes due in 2022 and the $400 million senior notes due in 2023, eliminating near term refinancing risk and extending the maturity profile. Additional note issuance facilitated the exchange offer for longer-term 2030, 2041, 2046, and 2047 notes into the same 34 year note.

The stable outlook reflects Moody's expectation that management will continue to target 2.0x net leverage (before Moody's adjustments) and adhere to a balanced approach to share repurchases, acquisitions, and debt management to protect credit metrics. The stable outlook also reflects Ecolab's strong track record of growing and improving the portfolio through organic growth as well as M&A activity, while maintaining a strong balance sheet with only occasional deviations from the company's net leverage targets.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Ecolab were to meaningfully expand its scale and end market diversity overtime while targeting net unadjusted leverage below 2.0x (which roughly equates to 2.5x on a Moody's adjusted basis and assuming normalized cash balances) and Retained cash flow to debt is sustained above 30%.

The ratings could be downgraded if Ecolab were to change its financial philosophy to target higher unadjusted net leverage, i.e., above 2.5x, or if large acquisitions stress the balance sheet with adequate recovery extending beyond a two year horizon.

Ecolab Inc. (Ecolab), headquartered in St. Paul, Minnesota, is a leader in institutional, water, and hygiene technologies and services that provide and protect clean water, safe food, and healthy environments. Revenues are geographically diverse with about 55% of revenues in NA, 26% in EMEA, 9% in Asia, 4% in Greater China and 6% in LA. Ecolab delivers programs and services to the food, healthcare, industrial and hospitality markets in more than 170 countries. Ecolab had continuing revenues of $11.8 billion for fiscal year 2020.

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Joseph Princiotta
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

Glenn B. Eckert
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.
© 2022 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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