Newell Brands debt ratings revised to stable

Moody’s Investors Service changed its rating outlook for Newell Brands Inc.’s debt to positive from stable.

At the same time, the rating agency confirmed the Ba1 Corporate Family Rating (“CFR”), Ba1-PD Probability of Default Rating (“PDR”), Ba1 senior unsecured debt instrument and NP (non-prime) rating of the commercial paper. The outlook for its Speculative Liquidity Rating (“SGL”) has changed from SGL-2 to SGL-2.

The assertion reflects Newell’s large scale, good, albeit weaker, operating performance and strong operating profit margin.

Moody’s said: “While the company has successfully executed on its strategic objectives and its commitment to return to organic growth, the weaker economic environment and inflationary pressure on consumers create elevated risks over the next 12 to 18 months. . These factors move the outlook revision to stable, as an upgrade in investment grade is not likely when earnings weaken. Moody’s expects demand for discretionary products such as home fragrances, small appliances, household food storage, and outdoor and leisure products to remain under pressure, particularly following a surge demand during the global pandemic. Additionally, the company’s ability to take pricing action to offset volume declines will be limited during this time as retailers become more order-timid and push back on suppliers to reduce prices. Inflated inventory levels at Newell may lead to discounts in order to move products more quickly through the channel and retain market share in a competitive environment. Despite the weaker economic outlook, Moody’s affirmed Newell’s Ba1 CFR as any cyclical weakness is likely to be temporary and the company remains focused on maintaining moderate financial policy. However, uncertainty and downside risks remain high during this period.

“Moody’s expects financial leverage to remain elevated at approximately 4.0x to 4.5x debt to EBITDA over the next 12-18 months, compared to 4.7x as of September 30, 2022, the decrease in indebtedness being largely due to the repayment of debt.Given the weak economic environment, it is unlikely that the company will be able to significantly reduce its indebtedness during this period, all the more so that it is also focused on paying a significant dividend to its shareholders Newell has a reported target net debt to EBITDA leverage ratio of 2.5x (based on the company’s calculation), which is quite modest compared to its leverage ratio of 3.9x as of September 30, 2022. Moody’s expects free cash flow (which counts for the dividend) to total $225-275 million over the next 12-18 months as higher than normal working capital is reduced Moody’s expects equal that the company uses this free cash flow to repay debt, given its current debt target.

“The downgrade to SGL-2 reflects earnings pressure over the next 12 months and the fact that the heavy use of working capital in 2022 will take time to subside, resulting in higher than expected revolver borrowings. The SGL-2 nonetheless reflects that Newell’s liquidity remains good with expected cash of $400 million by December 31, 2022, spare capacity on the $1.5 billion unsecured revolving credit facility expiring in August 2027 (unrated) and $375 million under the accounts receivable securitization facility expiring October 2023. The company had $1.1 billion in bonds that were due to mature in April 2023, but they were redeemed in October 2022.”

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