Fitch Downgrades Stanley Black & Decker, Inc. (fka The Stanley Works) to 'A-'

NEW YORK--(BUSINESS WIRE)--

Following the completion of the merger of The Stanley Works with Black & Decker Corp. in an all-stock transaction, Fitch Ratings has taken several rating actions.

These rating actions include downgrading and removing from Rating Watch Negative the ratings of Stanley Black & Decker, Inc. (formerly The Stanley Works (SWK)) as follows:

--Issuer Default Rating (IDR) to 'A-' from 'A';

--Bank credit facilities to 'A-' from 'A';

--Senior unsecured notes to 'A-' from 'A';

--Junior subordinated notes to 'BBB' from 'BBB+'.

Stanley Black & Decker, Inc.'s short-term IDR and commercial paper are rated 'F2'.

In addition, Fitch has upgraded and removed from Rating Watch Positive the ratings of The Black & Decker Corporation (BDK) and Black & Decker Holdings LLC as follows:

--IDRs to 'A-' from 'BBB';

--Senior unsecured notes to 'A-' from 'BBB'.

BDK's short-term IDR, revolving credit facilities including term loans, and commercial paper ratings have been withdrawn. BDK's credit agreements are to be terminated and any outstanding loans repaid.

The Rating Outlook is Stable.

All of the above ratings reflect cross guarantees among Stanley Black & Decker, Inc. and BDK (other than Stanley Black & Decker, Inc.'s junior subordinated notes).

Approximately $1.4 billion of SWK's debt, $1.7 billion of BDK's debt and $1.5 billion of bank facilities for Stanley Black & Decker, Inc. are covered by these actions.

The combined company's business risk will increase as a result of more dependence on cyclical industries and integration risk, although overall risk will be mitigated by considerable liquidity, expectation of decreasing leverage and substantial cost synergies of at least $350 million. Revenue growth synergies are anticipated and along with reduced costs should enhance future cash flow.

Both companies are cyclical. However, BDK has a stronger correlation to the residential housing market (primarily repair/remodeling) and the consumer sector, and therefore tends to come out of recessions earlier than Stanley's more industrial/commercial focus. Fitch believes the economy is stabilizing, which should lead to improvement in margins on volume growth. In addition, both companies are in similar lines of business and SWK has considerable experience in integrating acquisitions, which should minimize assimilating BDK.

Stanley Black & Decker, Inc. will become an important supplier to retailers for both hand and power tools, provide considerable operating leverage, and generate significant free cash flow. For 2009, the combined company had $8.5 billion in revenue, EBITDA near $1 billion, operating margins close to 8% and generated free cash flow of $720 million.

On a combined basis, at year-end 2009, EBITDA/interest was 6.4 times (x) and total debt with equity credit/EBITDA was 2.8x, ratios which are weak for an 'A-' rating. Nevertheless, expectations are for leverage to decline quickly over the next two years as debt is repaid. Fitch expects EBITDA/interest to strengthen to near 9.0x and total debt with equity credit/EBITDA to fall below 2.0x within two years. The combined company is expected to generate solid free cash flow (operating cash flow minus capital expenditures and dividends) once transaction and restructuring costs are absorbed, to have available cash balances well in excess of $1 billion, and maintain adequate available credit.

SWK has demonstrated conservative financial management over the past decade which is expected to continue. The combined company has strong liquidity and access to capital markets and debt reduction is a primary goal. Leverage, while initially higher because of BDK's outstanding debt, is forecast to decline reasonably quickly and liquidity will be strong, particularly with higher than expected cash balances at 2009 year-end for the combined company.

A new 364-day credit agreement combined with existing bank facilities will provide $1.5 billion of revolving credit. Cash flow is expected to be significantly higher once transaction and restructuring costs are absorbed, which will be heavier in the first year following the merger.

Maturing debt totaling $200 million (due March 15, 2010) plus $175 million required to be repaid as a result of change of control provisions in BDK's term loan agreements is adequately covered and most of this debt is expected to be repaid.

The above rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include:

--'Rating Hybrid Securities', dated Dec. 29, 2009;

--'Corporate Rating Methodology', dated Nov. 24, 2009;

--'Evaluating Corporate Governance', dated Dec. 12, 2007;

--'Liquidity Considerations for Corporate Issuers', dated June 12, 2007;

--'Short-term Ratings Criteria for Corporate Finance', dated June 12, 2007.

SWK markets hand tools, consumer mechanics tools, storage units, pneumatic tools and fasteners, and measuring tools in its Construction and DIY segment under such well-known brands as Stanley, FatMax, FatMax Xtreme, FatMax XL, Bostitch, as well as under certain retailers' private label brands. Professional mechanics tools, storage systems, plumbing, heating, air conditioning, specialty and assembly tools as well as assembly systems in its Industrial Segment are marketed under brands that include Stanley, Proto, Facom, MAC, Vidmar, and Blackhawk by Proto brands. Access and security solutions, including mechanical and electronic security products and systems and services as well as security monitoring systems are sold under the Stanley, Blick, Frisco Bay, PAC, ISR, WanderGuard, HSM, and Sonitrol brands.

BDK, a leading global producer of power tools, power tool accessories, and residential security hardware, markets these products under such well-known brands as Black & Decker, DeWalt, Porter-Cable, Kwikset, and Baldwin. The company is also a major global supplier of engineered fastening and assembly systems (Emhart Teknologies) and a leading producer of faucets (Price Pfister) in North America.

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.