NEW YORK - (Business Wire) Fitch Ratings has affirmed the following ratings on The Clorox Company (Clorox): --Issuer Default Rating (IDR) at 'BBB';
--Unsecured bank facility at 'BBB';
--Senior unsecured Notes at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper program at 'F2'.
The $1.1 billion revolving credit facility and $2.7 billion in unsecured senior notes are affected by this action. Fitch also assigns a 'BBB' rating to the $300 million 3.55% senior unsecured note issue with a maturity date of Nov. 1, 2015, which is expected to be settled on Nov. 9, 2009. The new issue will be used to partially refinance a $575 million 4.2% note which matures on Jan. 10, 2010. The remaining $275 million is expected to be refinanced with commercial paper. The Rating Outlook is Positive.
Clorox's ratings reflect its strong financial and business profile with a competitive focus on having big-share brands in mid-sized categories. The ratings also recognize that commodity price movement, while relatively benign at present, can fluctuate significantly, and that there is a modest portion of Clorox's revenues related to bleach and trash bags that have a strong private label presence. Clorox had $5.4 billion in revenues over the last 12 months.
The Positive Outlook incorporates Clorox's improved profitability, lower leverage and Fitch's expectations for solid free cash flow, on average, at fiscal 2009 levels or a bit better over the medium term. Gross and operating margins have improved sequentially for the four quarters through Sept. 30, 2009. Margin improvement has been substantial - at least 500 basis points - over the past four quarters. Leverage (Debt/EBITDA) has declined to 2.5 times (x) from the 3.2x seen in 2007 when Clorox concluded its accelerated share repurchase program and the Burt's Bees acquisition. Fitch expects debt balances to remain essentially flat over the medium term. With this new issuance, Clorox improves its liquidity, as there would be no material long-term debt maturity until the latter part of 2012.
A change in the rating would be predicated on Clorox maintaining its operational momentum in the next year in a slow organic growth and highly promotional environment. Additionally, Fitch expects Clorox will balance any shareholder-friendly activities and potential acquisitions within its publicly stated leverage target of between the 2x and 2.5x level.
Clorox, based in Oakland, California, is a leading U.S. household products company. Its Clorox bleach brand holds the No. 1 position in the domestic bleach market with a share of over 60%. Leading household cleaners include Pine-Sol, Clorox Clean-up, Formula 409, Tilex and Liquid-Plumr. Other product categories include salad dressings and sauces (Hidden Valley Ranch, KC Masterpiece), cat litters (Fresh Step, Scoop Away), charcoal briquettes (Kingsford), water filtration systems (Brita), plastic bags and wraps (Glad), and auto care (Armor All, STP). The company's largest customer, Wal-Mart Stores, Inc., accounts for 27% of sales.
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Fitch Ratings, New York
Grace Barnett, CPA, 212-908-0718
Tom Razukas, CFA, 212-908-0223
or
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