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February 26, 2008 |
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INVENSYS PLC: Leverage Expectations Cue S&P's Positive Outlook Standard & Poor's Ratings Services revised its outlook on U.K.- based capital goods group Invensys PLC to positive from stable. At the same time, the 'BB' long-term corporate credit rating was affirmed. "The outlook revision reflects our expectation that leverage and cash flow credit protection measures could be maintained above levels normally required for the ratings," said Standard & Poor's credit analyst Louise Newey. On a 12-month rolling basis to Dec. 31, 2007, the funds from operations (FFO)-to-debt ratio stood at 34.7% and the debt-to- EBITDA ratio was 1.6x, which compares positively with 17.8% and 3.2x, respectively, at fiscal year-end March 31, 2007. The group will redeem its outstanding GBP343 million high-yield bonds, paid out of existing cash balances, leading to their cancellation on March, 17, 2008. Invensys is considering options for its capital structure and financial policy targets, which are currently bound by restrictions on acquisitions and dividend payouts under existing facilities. Standard & Poor's considers that the group's capital structure and credit protection measures could be sustained at levels required for a higher rating. "An upward movement in the ratings would arise from a capital structure with cash flow leverage at above 30% on a sustainable basis," Ms. Newey added. "Business risk conditions would need to remain supportive, mitigating the group's sensitivity to more cyclical industries." The outlook would be revised to stable if the FFO-to-debt ratio under the new capital structure falls to 20%-30% on a consistent basis. To maintain the 'BB' ratings, S&P would expect continued steady positive free cash flow generation supported by overall stable business conditions. Any negative movement in the ratings is less likely in the short to medium term. |
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