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February 12, 2008 |
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INVENSYS PLC: Moody's Reviews Ratings for Possible Upgrade Moody's Investors Service has placed the ratings of Invensys Plc on review for possible upgrade. Ratings actions follow the release of third quarter results showing the continuation of a positive operating trend and reduction in legacy liabilities which Moody's treats as debt, together with notification of the optional redemption of around GBP 343 million of high yield bonds due March 2011 using cash on hand. Moody's will withdraw the ratings on the high yield bonds if these are fully redeemed in March 2008. The rating action reflects the continued positive momentum in underlying operating performance, together with the company's demonstrated commitment to apply more conservative financial policies that target toward a higher credit rating. The intention to call bonds marks a continuation of the company's pattern to divest businesses and use proceeds or allocate free cash flows to reduce absolute debt levels. In particular, the sale of APV and the Firex Safety and Reversing Valve divisions and use of proceeds for debt reduction, together with the continued decreases in legacy liabilities (i.e. comprising pensions, litigation, taxation, environmental and transition costs) are key drivers for the ratings. The company's positive trend in operating performance, decreases in legacy liabilities and debt reduction plans will see the financial risk profile materially improve. These plans will also further simplify the capital structure, reduce future funding costs and enhance financial flexibility. Moody's estimates that adjusted debt to EBITDA will move from above 3.0 times as at March 31, 2007 to less than 2.0 times on a proforma last 12 months basis to Dec. 31, 2007, if all of the bonds are redeemed. Similarly, the adjusted EBIT interest cover ratio would move from around 2.0 times as at March 31, 2007 to closer to 3.0 times. Moody's review will consider the forward outlook for Invensys' businesses, particularly in light of the company's solid market positions and strong brands, counterbalanced by exposure to cyclical industries, strong competition and subdued performance in the Eurotherm division, albeit that this contributes less than 7.5% of total group revenues. Revision of the business footprint and possible further changes to the capital structure also form part of Moody's review which are also expected to be positive for ratings. A review of the company's on-going operational performance and cash flow generation will also be an important ratings consideration, particularly in light of the different economic outlooks across the markets and sectors in which the company operates. Nevertheless, the material reduction in absolute debt levels and legacy liabilities has already led to a strengthening in the company's financial risk profile so continued positive momentum along with the demonstration of sustainable performance would see upward ratings pressure. The impact from further changes cited for the debt capital structure, plans to reinstate dividends and other financial policy objectives, such as targeting a higher credit rating, are additional factors being considered as part of the review. These ratings are affected: -- corporate family rating placed on review for possible upgrade; -- ratings on senior notes due 2010 and 2011 placed on review for possible upgrade. Based in London, United Kingdom, Invensys Plc -- http://www.invensys.com/ -- is a global automation, controls and process solutions Group operating in more than 60 countries worldwide. The company operates through six units: Controls, Process Systems, Rail Systems, APV, Wonderware, and Eurotherm. For the nine months ended Dec. 31, 2007, Invensys reported total revenues from continuing operations of approximately GBP 1.59 billion. In Latin America, the company has operations in Argentina, Brazil, Chile, Mexico and Venezuela. * * * As reported in the Troubled Company Reporter-Latin America on Jan. 22, 2008, Fitch Ratings has upgraded UK-based Invensys PLC's and Invensys International Holdings Ltd's Long-term Issuer Default Ratings to 'BB' from 'BB-' with a stable outlook and removed them from Rating Watch Positive. Fitch has also affirmed the Short- term IDR at 'B'. Fitch says approximately GBP470 million of debt is affected by the rating action. |
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