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Rating Action:

Moody's upgrades Snap-on's rating to A3, outlook is stable

Global Credit Research - 17 Jan 2014

Approximately $950 million of debt securities affected

New York, January 17, 2014 -- Moody's Investors Service upgraded Snap-on Incorporated's ("Snap-on") senior unsecured credit rating to A3 from Baa1, and affirmed the company's short term rating at P-2. The rating outlook is stable.

The rating action was based on Snap-on's growing global position as a leading tool and diagnostic equipment manufacturer, its resilient earnings profile through economic cycles, and its commitment to a conservative balance sheet. The action also reflects the company's strengthening credit metrics, sound liquidity, and ability to generate solid free cash flow, even when considering cash used to fund the receivables portfolio.

The following rating actions were taken:

Senior unsecured rating, upgraded to A3 from Baa1;

Short term rating, affirmed at P-2;

Outlook is stable.

RATINGS RATIONALE

Snap-on's A3 rating is supported by its global presence, reputation for superior quality products which affords it price premiums over generic tools and lower quality brands, and leading market position in the U.S. for automotive tools and diagnostic equipment for professional repair centers. The rating also reflects Snap-on's relatively resilient operating performance and its core operations' ability to generate consistently solid funds from operations. Snap-on's success in part stems from the success of the Tools Group's franchise van channel, and the provision of customer credit. We believe that the van channel operations remain well-managed, and that the company has adequate capacity to meet customer financing requirements while preserving prudent underwriting standards. The company's rating also reflects its modest financial leverage and solid operating margins. The company's overall EBITA margins are growing in part due to higher earnings contribution by the financial services segment that typically generates higher margins, but also from solid organic growth in its Repair Systems and Information Group and Tools Group. These strengths are offset by the moderate use of cash flow to fund its financial services segment and the credit risks associated with its borrowers and franchisees. The ability to provide financing to its customers and franchisees is also an important supplement to drive sales of Snap-on's higher priced products. Snap-on has demonstrated its ability to absorb these needs while still generating strong free cash flow. In addition, net loss trends in its Financial Services segment have been very low since 2007, with its highest annual loss rate at 3%.

Snap-on's stable outlook reflects its sound business fundamentals, conservative financial policies, and comfortable liquidity position. The company's globally diverse customer base provides it with consistent revenue and cash flow generation. The stable outlook is also supported by Snap-on's stable and improving company-wide operating margins, and moderate growth in its financial services segment.

Moody's indicated that an upgrade over the intermediate term is unlikely. However, a rating upgrade would be predicated upon Snap-on's continued strength in market share, resilience to volatility in weak economic conditions, and evidence of conservatism in its corporate financial policy and underwriting standards in its financial services segment. In addition, adjusted EBITA above $1 billion, adjusted free cash flow to debt greater than 20% and adjusted debt to EBITDA below 1.5x, all on a consistent basis, would also support an upgrade.

The rating could be negatively impacted by a decline in the business prospects of Snap-on's client and franchise base that materially weakens its accounts receivable quality, or if the company's liquidity weakens. The ratings could also be downgraded if Snap-on pursues large debt-financed acquisitions, or undertakes dividends or share repurchases that result in debt-to-EBITDA leverage increasing above 2.5x (as adjusted) for an extended period of time.

The principal methodology used in this rating was the Global Manufacturing Industry published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Snap-on Incorporated [NYSE: SNA], headquartered in Kenosha, Wisconsin, is a global manufacturer and marketer of hand and power tools, tool storage products, diagnostic hardware and software, equipment for the vehicle service and repair market, and for critical industries. The company operates four segments: Commercial & Industrial Group, Snap-on Tools Group, Repair Systems & Information Group, and Financial Services. Through its distribution channels, Snap-on has presence in more than 130 countries and typically generates approximately 40% of sales internationally. The company serves vehicle repair, industrial, agriculture, government, aviation and natural resources customers in its major geographic markets of North America, Europe and Asia/Pacific. In the LTM period ending September 28, 2013, Snap-on generated approximately $3.0 billion in sales.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Karen L Nickerson
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Glenn B Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Snap-on's rating to A3, outlook is stable
No Related Data.

 

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