CHICAGO - (Business Wire) Fitch Ratings has affirmed ITT Corporation's (ITT) debt ratings as follows: -- Issuer Default Rating (IDR) at 'A-';
-- Short-term IDR at 'F2';
-- Senior unsecured bank facilities at 'A-';
-- Senior unsecured debt at 'A-';
-- Commercial paper (CP) at 'F2'.
Approximately $1.7 billion of outstanding debt is covered by these ratings. The Rating Outlook is Stable.
The ratings and Outlook reflect ITT's solid credit measures, stable defense business, consistent free cash flow and adequate liquidity. Debt reduction in the current year has helped to offset the negative impact of weaker operating results in ITT's industrial businesses related to the recession. As a result, leverage has remained relatively stable. At Sept. 30, 2009, debt-to-EBITDA was 1.2 times (x) compared with 1.4x at the end of 2008.
ITT's operating results have weakened through the first nine months of 2009 and should remain depressed through 2010. Lower revenues in the Motion & Flow Control and Fluid Technology business segments due to softening in multiple end-markets should be partially offset by slight revenue growth in the Defense Electronics & Services segment. ITT expects some improvement in a few end-markets such as industrial, and automotive, which is coming off historical lows. On the other hand, weak commercial and aerospace markets could partially offset those gains. Operating margins should improve in 2010, but remain below 2007 highs, as cost savings from restructuring actions are realized and volumes increase.
ITT's strong backlog and steady operating results in Defense help stabilize the company's results. ITT's defense backlog was over $5 billion at the end of October 2009. However, Fitch believes that fiscal 2010 is probably the peak in core U.S. defense budgets, and there are several risks to monitor in fiscal 2011 and beyond. These include the Obama Administration's first full budget in 2011, the Quadrennial Defense Review, and the large projected federal budget deficits in fiscal 2009-fiscal 2011.
ITT's cash flows could be pressured in 2010. As demand in ITT's industrial markets stabilize and revenues begin to improve, working capital may become a net cash outflow, partly offsetting increased earnings. ITT focused its discretionary cash flow spending in 2008 and 2009 on debt reduction. In the absence of future debt reduction, ITT's free cash flow and solid leverage provide capacity to make acquisitions or share repurchases. A rating risk includes the possibility of a material acquisition, similar to 2007's acquisition activity, that increases leverage to historically high levels.
ITT maintains solid liquidity and leverage metrics despite a difficult economic environment. The company took a more conservative view in the current year In order to moderate the impact of the unstable credit markets on its balance sheet and improve liquidity. The company reduced its reliance on short-term debt and now has no significant debt maturities until 2014. Because of the reduction in CP, ITT has more flexibility to use short-term debt to fund future acquisitions.
ITT's liquidity position and debt structure should continue to change in 2010 as the company looks to replace its $1.75 billion revolving credit line that matures in November 2010. The expected changes to the revolver will most likely not have a material impact on ITT's liquidity due to its ability to generate free cash flow, lack of required pension contributions in 2010 and significant cash balances. ITT's liquidity at Sept. 30, 2009 included cash balances of $1.35 billion and availability under its bank facility that matures in 2010, offset by $243 million of CP and current maturities of long-term debt.
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.
Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Cheryl Peterson, +1-312-606-2309 (Chicago)
Eric Ause, +1-312-606-2302 (Chicago)
