Fitch Ratings has affirmed S.C. Johnson & Son, Inc.'s (SCJ) Issuer Default Rating (IDR) at 'A-'. The ratings apply to approximately $2 billion of total outstanding debt. The Rating Outlook is Stable. A full list of affirmed ratings follows at the end of this release.
KEY ASSUMPTIONS
--Negative F/X offsets organic growth. However, the impact of recently closed acquisition of The Deb Group and Homebrands A.S. should result in positive low single-digit growth in 2015.
--Bolt-on, but accretive, acquisitions will continue and could lead to moderate increase in gross debt levels in the medium term.
--The company retains its current private company structure.
KEY RATING DRIVERS
Brand, Geographic Diversity
SCJ is a privately held household products company with a diverse portfolio of leading brands such as Glade for air care, Raid in pest control, Windex and Mr. Muscle in home cleaning, Ziploc in home storage solutions, and Kiwi in shoe care. Products are sold in more than 100 countries. The U.S. accounts for a meaningful portion of operations; however, the company is not dependent on any one product or region.
Improved Operating Performance
Revenue growth has been, and should remain, in line with the household and personal care sectors' organic range of 1% to 6%. However, foreign exchange translation will hamper near term growth similar to other multinational companies.
On the margin and cash flow front, improvements have been noticeable. Accretive bolt on acquisitions, past disposal of brands with lower-than-corporate average margins, and several successful restructuring efforts, has led to not only sequential EBITDA margin improvements but also free cash flow (FCF) generation over the past three fiscal years and the last 12 months ended Jan. 2, 2015. FCF is expected to decline modestly in 2015 given restructuring related payments but should resume its upward trajectory thereafter.
Limited Capital Market Access
The company intends to maintain its current private-company structure which limits access to the equity capital markets. Nonetheless, SCJ maintains strong access to debt markets.
Significant Liquidity, Stable Credit Profile
Much of the company's liquidity is generated internally and back-up facilities are just a moderate portion of SCJ's total liquidity. Fitch anticipates that the company can continue to finance acquisitions internally and that debt balances are likely to remain around the current $2 billion range in the near term but could increase over time.
Virtually all of SCJ's debt is unsecured. The majority has change of control puts and of these, several, including the credit agreement that matures in 2018, have leverage covenants. One note has very modest amortization through 2018. However, there is no significant debt maturity for the next three years.
RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to a positive rating action or Outlook revision include:
--If SCJ commits to operating with leverage at half a turn less than current levels while continuing its current business momentum and strong cash flow generation.
Future developments that may, individually or collectively, lead to a negative rating action include:
--If the company engages in a large leveraged acquisition or materially increases its leverage over a half turn more on a sustained basis or for other reasons that signal a change in its financial strategy. However, this is not expected.
Fitch affirms SCJ as follows:
--Issuer Default Rating (IDR) at 'A-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2';
--Senior unsecured notes at 'A-';
--Bank credit facility at 'A-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology: Including Short-term Ratings and Parent and Subsidiary Linkage' (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=982715
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Contacts:
Primary Analyst:
Grace Barnett, +1-212-908-0718
Director
Fitch
Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary
Analyst:
Michael Zbinovec, +1-312-368-3164
Senior Director
or
Committee
Chairperson:
Michael Weaver, +1-312-368-3156
Managing Director
or
Media
Relations:
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth
Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com