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Fitch Affirms SC Johnson at 'A-'; Outlook Stable
September 30, 2016 / 5:41 PM / a year ago

Fitch Affirms SC Johnson at 'A-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, September 30 (Fitch) Fitch Ratings has affirmed S.C. Johnson & Son, Inc.'s (SCJ) Long-Term Issuer Default Rating (IDR) at 'A-' and Short-Term IDR and commercial paper ratings at 'F2'. The Rating Outlook is Stable. See the full list of ratings at the end of this release. The ratings consider SCJ's diversified portfolio of strong brands in the consumer products sector, its track record of growth in sales, EBITDA and cash flow, and reasonable leverage. KEY RATING DRIVERS Brand and Geographic Diversity SCJ is a privately held household products company with a diverse portfolio of leading brands such as Glade in home fragrance, Raid and Off! in pest control, Pledge, Windex and Mr. Muscle in home cleaning, Ziploc in home storage and Kiwi in shoe care. While the U.S. accounts for a meaningful portion of operations, products are sold in more than 100 countries and the company is not dependent on any one product or region. Stable Operating Performance Organic revenue growth has been, and should remain, in line with the household and personal care sectors' low single-digits range going forward. The strong U.S. dollar has had a negative impact on recently reported results and continued strength would limit future reported growth. Operating profit and cash flow have followed sales growth with margin expansion and a positive free cash flow (FCF) CAGR in recent years. Accretive bolt-on acquisitions and recent restructuring efforts have supported this growth, and benefits from this type of activity could continue over the rating horizon. Limited Equity Capital Market Access The company intends to maintain its current private-company structure, which limits access to the equity capital markets. The company generates substantial FCF, which could fund small bolt-on acquisitions, and SCJ has demonstrated an ability to access debt markets when necessary to fund larger transactions. The company issued $850 million of unsecured notes in 2015 to take advantage of the low interest rates and provide liquidity to fund future acquisitions. KEY ASSUMPTIONS --SCJ is expected to produce modestly positive organic revenue growth over the next several years. Continued dollar weakness could limit reported sales growth. --Operating margins are expected to remain stable or improve modestly due to the company's SG&A management focus. --Accretive, bolt-on acquisitions could continue, potentially leading to moderate increases in gross debt levels in the medium term. --The company is expected to retain its private-company structure. RATING SENSITIVITIES Future developments that may lead to a positive rating action or Outlook revision include a commitment to operating with gross leverage under 2x 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 a large leveraged acquisition or a change in financial strategy which weakens the company's credit profile and leads to a sustained increase in gross leverage to over 2.5x. LIQUIDITY Significant Liquidity, Stable Credit Profile The company's liquidity is supported by strong FCF generation and backed by its credit facility. Debt balances are expected to remain around the current $3 billion range in the near term as the company can use its sizeable cash balance, which includes the $850 million issued in 2015, to add EBITDA-generating assets while maintaining gross leverage within Fitch's rating sensitivities. 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 2019, have leverage covenants. There is no significant debt maturity until 2024. FULL LIST OF RATING ACTIONS Fitch has affirmed SCJ's ratings 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-'. The Outlook is Stable. Contact: Primary Analyst David Silverman, CFA Senior Director +1-212-908-0840 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Monica Aggarwal, CFA Managing Director +1-212-908-0282 Committee Chairperson William Densmore Senior Director +1-312-368-3125 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available at Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --Historical and projected EBITDA is adjusted to exclude immaterial restructuring charges in fiscal 2016. 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