June 7, 2017 / 8:33 PM / 6 months ago

Fitch Affirms Corning's IDR at 'BBB+'; Withdraws Ratings

(The following statement was released by the rating agency) NEW YORK, June 07 (Fitch) Fitch Ratings has affirmed and withdrawn the following ratings for Corning Incorporated (NYSE: GLW, Corning): --Long-Term Issuer Default Rating (IDR) 'BBB+'; --Short-Term IDR 'F2'; --Senior unsecured debt 'BBB+'; --Senior unsecured revolver 'BBB+'; --Commercial paper 'F2'. The Rating Outlook is Stable. Fitch has withdrawn Corning's ratings for commercial reasons. Fitch reserves the right in its sole discretion to withdraw or maintain any rating at any time for any reason it deems sufficient. KEY RATING DRIVERS The company's 'BBB+' Long-Term IDR reflects: Technology & Market Leadership: Fitch believes Corning's significant cumulative investments in research, development and engineering (RD&E) and capital spending have resulted in technology and share leadership across large and growing markets, including liquid crystal display (LCD) glass, optical fiber for telecommunications, and ceramic filters for automotive applications. More Aggressive Capital Returns: Fitch expects continued aggressive capital returns, consistent with Corning's strategic framework and decision to adjust financial policies to be more in-line with a 'BBB+' rating. Fitch assumes the company will use its FCF primarily for share repurchases and acquisitions, to a lesser extent, potentially resulting in higher total leverage since the majority of Corning's cash flow is offshore. Significant Investment Requirements: Fitch expects the company's investment-intensity will remain significant to support growth initiatives. Although Corning's focus leverages three key technologies (glass science, optical physics and ceramic science), RD&E and capex should continue representing 7%-8% and mid-teens as a percentage of revenue, respectively. The company has significant opportunities for long-term growth for Gorilla Glass from higher automotive penetration (beyond displays to windshields and doors) and continues engineering manufacturing processes to offset annual price declines in LCD glass. Solid Pre-Dividend FCF Profile: Fitch expects Corning's pre-dividend FCF profile will remain solid over the longer-term, supporting still meaningful capital spending despite Corning's ongoing expectations for reducing capital intensity. While capex will remain significant, capital requirements for fiber and filters manufacturing are lower than that for LCD glass markets potentially bolstering FCF further over time. In addition, the company is rebuilding its LCD tanks, which will result in elevated near-term capex. However, capital intensity for the LCD business continues to decline, given spending is on additional capacity, efficiency and maintenance, rather than retooling for ever larger production sizes. DERIVATION SUMMARY Corning's ratings reflect its technology and market leadership supported by meaningful barriers to entry offset to a degree by its shift to more aggressive shareholder capital returns. More highly rated peers have more conservative financial policies, greater diversification and are less exposed to adverse sectoral trends and cyclicality. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: --Organic sales growth in the low single-digits augmented by acquisitions focused in growth segments; --Operating EBITDA margins of approximately 32% declining to 30% with continued diversification to non-display businesses; --Acquisition spending of $1 billion in aggregate and $1.3 billion to $1.5 billion in annual capex over the rating horizon; --Approximately $2 billion in aggregate common dividends and $6.5 billion in aggregate share repurchases; --Annual FCF of $600 million rising to $900 million over the ratings horizon and incremental aggregate debt issuance of approximately $4 billion to fund post-dividend shareholder capital return and acquisitions. RATING SENSITIVITIES Rating sensitivities are no longer relevant given today's rating withdrawals. LIQUIDITY As of March 31, 2017, Corning's liquidity was adequate supported by $4.8 billion in cash ($3.2 billion held abroad), an undrawn $2 billion revolving credit facility expiring in September 2019 (the facility includes a maximum 50% debt to total capital financial covenant; at March 21, 2017 debt to total capital was approximately 18%), which also supports the company's $2 billion commercial paper program (the company did not have outstanding commercial paper at March 31, 2017), as well as Fitch's expectation for FCF of $600 million to $900 million annually. Total debt as of March 31st, 2017 was $5.066 billion (including the unrated $1.15 billion of convertible preferred stock after applying 50% equity credit to $2.3 billion convertible preferred stock. FULL LIST OF RATING ACTIONS Fitch has affirmed and withdrawn the following ratings: Corning Incorporated --Long-Term Issuer Default Rating (IDR) 'BBB+'; --Short-Term IDR 'F2'; --Senior unsecured debt 'BBB+'; --Senior unsecured revolver 'BBB+'; --Commercial paper 'F2'. The Rating Outlook is Stable. Contact: Primary Analyst Kevin McNeil Director +1-646-582-4768 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Jason Pompeii Senior Director +1-312-368-3210 Committee Chairperson David Peterson Senior Director +1-312-368-3177 Summary of Financial Statement Adjustments - Fitch did not make financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor. Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Additional information is available on www.fitchratings.com. 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