Fitch Rates Whirlpool's Proposed Euro 500MM Sr. Unsecured Notes Offering 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has assigned a 'BBB' rating to Whirlpool Corporation's WHR proposed offering of Euro 500 million aggregate amount of senior unsecured notes. The new offering will be equal in right of payment with all other senior unsecured debt. Whirlpool intends to use the proceeds from the notes offering for the repayment of a portion of its commercial paper (CP) borrowings.

INDESIT AND HEFEI ACQUISITIONS

On Oct. 14, 2014, Whirlpool completed the acquisition of a 60.4% majority ownership of Indesit Company S.p.A. (Indesit), representing a 66.8% voting stock in the company (including the treasury shares held by Indesit). The total acquisition price at the dates of the three purchase agreements was $965 million ($75 million for Ms. Claudia Merloni's 4.4% stake in Indesit acquired on July 17, 2014; $680 million for 42.7% stake of Fineldo S.p.A. acquired on Oct. 14, 2014 and $210 million for the 13.2% stake of certain members of the Merloni family's acquired on Oct. 14, 2014).

On Nov. 28, 2014, the company settled and closed the mandatory tender offer for the remaining shares of Indesit. The company received tenders for a number of shares equal to 91.4% of the total shares available for purchase, increasing Whirlpool's ownership interest in Indesit to 97.1%. The aggregate purchase price for the shares purchased was EUR344 million (approximately $429 million at the date of purchase).

On Dec. 3, 2014, Whirlpool purchased all the remaining shares of Indesit and Indesit delisted from the Electronic Stock Market managed by Borsa Italiana S.p.A. Total consideration paid for Indesit was about $1.4 billion, net of cash acquired. The company funded the purchase price for the tender offer and the remaining shares through borrowings under its credit facility and through borrowings under its CP program.

On Oct. 24, 2014, Whirlpool's wholly-owned subsidiary, Whirlpool (China) Investment Co., Ltd., completed its acquisition of a 51% equity stake in Hefei Rongshida Sanyo Electric Co., Ltd. The aggregate purchase price was RMB 3.4 billion (approximately $551 million based on the exchange rate as of Sept. 30, 2014). Whirlpool funded the acquisition with a combination of cash and other debt financing.

While Fitch views these transactions as strategically positive for Whirlpool, these acquisitions meaningfully increased the company's debt and leverage levels. As of Dec. 31, 2014, Whirlpool had total debt of $4.35 billion compared with $2.46 billion at Dec. 31, 2013. At the end of 2014, Whirlpool's debt to EBITDA was 2.3x compared with 1.2x at the conclusion of 2013.

KEY RATING DRIVERS

On Oct. 22, 2014, Fitch affirmed the ratings of Whirlpool following the completion of its acquisition of 60.4% ownership of Indesit.

Whirlpool's ratings reflect its position as the world's largest appliance manufacturer, with leading market positions in many regions. The company's global operating platform, increased manufacturing efficiency, and well-recognized skills in innovation have enabled it to improve its cost structure, compete more effectively around the world, and adjust to volatile material costs. Risks include intense global competition, volatility of raw material costs, sensitivity to business cycles, and ongoing regulatory issues.

The ratings and Stable Outlook also reflect Fitch's expectation that debt to EBITDA will settle at around 1.5x - 2.0x and interest coverage will be above 9.0x within 12-24 months following the completion of the acquisitions of Indesit and Hefei. At the end of 2014, Whirlpool's debt to EBITDA was 2.3x and interest coverage was 11.6x during 2014.

Fitch estimates that the company's debt to EBITDA will approximate 2.0x and funds from operations (FFO) adjusted leverage will be 3.5x by year-end 2015. Interest coverage is projected to be approximately 10.0x at the conclusion of 2015.

Fitch expects the company will reduce leverage in 2016, with debt to EBITDA projected to be about 1.5x, FFO adjusted leverage situating at 3.0x and interest coverage above 10.0x at the end of 2016.

SOLID LIQUIDITY POSITION

As of Dec. 31, 2014, Whirlpool had cash of $1.03 billion and no borrowings under its $2 billion long-term revolving credit facility that matures in 2019 and its $1 billion 364-day revolving credit facility that matures in September 2015. At the end of 4Q'14, Whirlpool had $387 million outstanding under its commercial paper program and $182 million of other short-term borrowings. The company also has $200 million of senior notes maturing in May 2015. The proposed notes issuance will be used to repay Whirlpool's CP borrowings.

A majority of the company's cash is held in foreign countries (approximately 90% of cash as of Dec. 31, 2014 was held overseas). WHR's intent is to permanently reinvest these funds outside the U.S. and the company's current plans do not demonstrate the need to repatriate these funds to support U.S. operations.

KEY ASSUMPTIONS

Fitch's key assumptions within its rating case for the issuer include:

--Total U.S. industry housing starts improve 13.8%, while new and existing home sales grow 18% and 4.3%, respectively, in 2015;

--U.S. home improvement spending advances 6% during 2015.

--Revenues grow mid-single-digits on a pro forma basis, driven by moderately stronger appliance shipments in the U.S. and relatively weak demand internationally;

--EBIT margins improve about 50 bps in 2015;

--Debt/EBITDA approximates 2.0x and interest coverage sustains above 10.0x at the end of 2015;

--Whirlpool reports free cash flow margin of 2%-3% during the next few years;

--The company does not undertake meaningful share repurchases.

RATING SENSITIVITIES

While Fitch does not expect a global economic downturn during the next 12 months, the company's risk profile is somewhat heightened by the significant debt incurred for the acquisition of Indesit as well as the acquisition of a 51% equity stake in Hefei. Negative rating actions may be considered if there is significant deterioration in global demand and consequently the company's operating performance, Whirlpool undertakes shareholder friendly activities funded by debt, and/or there is material judgment against the company related to existing regulatory proceedings, leading to leverage levels consistently exceeding 2.5x and interest coverage falling below 5.5x.

While unlikely in the next 6-12 months, positive rating actions may be considered if the company's financial performance is meaningfully better than Fitch's base case forecast, particularly debt-to-EBITDA consistently situating within a range of 1.0x - 1.5x and interest coverage sustaining above 10x, as Whirlpool continues to maintain a solid liquidity position.

Fitch currently rates Whirlpool as follows:

Whirlpool Corporation

--Long-term Issuer Default Ratings (IDR) 'BBB';

--Short-term IDR 'F2';

--Commercial paper 'F2';

--Senior unsecured notes 'BBB';

--Bank revolving credit facility 'BBB'.

Maytag Corporation

--Long-term IDR 'BBB';

--Senior unsecured notes 'BBB'.

Whirlpool Finance B.V.

--Short-term IDR 'F2';

--Commercial paper 'F2'.

Whirlpool Europe B.V.

--Commercial Paper 'F2'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980813

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