Fitch Ratings has assigned a rating of 'A-' to the new
senior unsecured debt announced yesterday by Johnson Controls (JCI).
JCI is offering $2.5 billion in bonds consisting of four different
tranches with varying maturities from two to 30 years. The new senior
unsecured debt replaces temporary financing, consisting of commercial
paper and a bridge loan, completing the financing of the York
International acquisition which closed in December 2005.
Fitch's current ratings on Johnson Controls (JCI) ratings are as follows:
-- Issuer Default Rating (IDR) 'A-';
-- Senior unsecured debt and bank facilities 'A-';
-- Commercial paper to 'F2'.
Fitch also currently rates the senior unsecured bonds of York International 'A-' that remain outstanding. The Rating Outlook is Stable. For more information, see the Oct. 31 press release, 'Fitch: Johnson Controls to be Downgraded to 'A-'; Stable Outlook Upon Closing of York Acquisition' and the Dec. 6 press release, 'Fitch Downgrades Johnson Controls To 'A-'; Stable Outlook' both of which are available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's ratings incorporate the higher debt levels incurred as a result of the acquisition, integration, and end-market risks, as well as the diversification benefits that the acquisition provides to JCI's operating profile. Fitch also recognizes JCI's strong management team, history of successful acquisitions and solid track record in growing its business segments.
The acquisition increases debt from approximately $2.3 billion at Sept. 30, 2005, to approximately $5.4 billion -- including the two outstanding York International bonds -- at the closing. Fiscal 2005 free cash flow was in excess of $700 million (including a voluntary pension contribution of $180 million). JCI's credit metrics have recently been strong for the rating category and compared to JCI's historical metrics, providing the flexibility to make modest acquisitions within the rating category. Following the acquisition, expected top-line growth and cost synergies should provide ample capacity to quickly pare down acquisition debt.
The acquisition of York provides further customer and geographic diversification to JCI's business mix. York roughly doubles the size of the company's controls business to about $11 billion in revenue. The acquisition expands JCI's product offerings and global reach into eastern Europe, the Middle-East and Asia. Potential benefits derived from product and systems integration should be leveraged through JCI's wide U.S. branch network. On a pro forma basis, the controls business should account for approximately a third of operating income, reducing the automotive segment to less than half. The highly profitable battery business will represent roughly 20% of pro forma operating income.
Despite severe pressures in the automotive supply industry, JCI's operating position continues to improve. In the automotive segment, OEM diversification, geographic diversification, healthy top-line growth, and operating efficiencies have helped JCI offset production cuts at domestic OEMs, pricing pressures, and commodity price increases. With an incremental three-year backlog of booked new automotive business of $3.3 billion, Fitch expects revenue growth to continue despite potentially lower industry production volumes. JCI is well positioned with transplant manufacturers, providing a well-balanced customer profile. Although the traditional 'Big 3' represented about 35% of JCI's total customer exposure and 44% of automotive customers in 2004, transplants account for more than 30% of JCI's North American automotive business. The controls and battery segments, which provide attractive balance, have also shown steady growth and enhance JCI's consolidated risk profile.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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's current ratings on Johnson Controls (JCI) ratings are as follows:
-- Issuer Default Rating (IDR) 'A-';
-- Senior unsecured debt and bank facilities 'A-';
-- Commercial paper to 'F2'.
Fitch also currently rates the senior unsecured bonds of York International 'A-' that remain outstanding. The Rating Outlook is Stable. For more information, see the Oct. 31 press release, 'Fitch: Johnson Controls to be Downgraded to 'A-'; Stable Outlook Upon Closing of York Acquisition' and the Dec. 6 press release, 'Fitch Downgrades Johnson Controls To 'A-'; Stable Outlook' both of which are available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's ratings incorporate the higher debt levels incurred as a result of the acquisition, integration, and end-market risks, as well as the diversification benefits that the acquisition provides to JCI's operating profile. Fitch also recognizes JCI's strong management team, history of successful acquisitions and solid track record in growing its business segments.
The acquisition increases debt from approximately $2.3 billion at Sept. 30, 2005, to approximately $5.4 billion -- including the two outstanding York International bonds -- at the closing. Fiscal 2005 free cash flow was in excess of $700 million (including a voluntary pension contribution of $180 million). JCI's credit metrics have recently been strong for the rating category and compared to JCI's historical metrics, providing the flexibility to make modest acquisitions within the rating category. Following the acquisition, expected top-line growth and cost synergies should provide ample capacity to quickly pare down acquisition debt.
The acquisition of York provides further customer and geographic diversification to JCI's business mix. York roughly doubles the size of the company's controls business to about $11 billion in revenue. The acquisition expands JCI's product offerings and global reach into eastern Europe, the Middle-East and Asia. Potential benefits derived from product and systems integration should be leveraged through JCI's wide U.S. branch network. On a pro forma basis, the controls business should account for approximately a third of operating income, reducing the automotive segment to less than half. The highly profitable battery business will represent roughly 20% of pro forma operating income.
Despite severe pressures in the automotive supply industry, JCI's operating position continues to improve. In the automotive segment, OEM diversification, geographic diversification, healthy top-line growth, and operating efficiencies have helped JCI offset production cuts at domestic OEMs, pricing pressures, and commodity price increases. With an incremental three-year backlog of booked new automotive business of $3.3 billion, Fitch expects revenue growth to continue despite potentially lower industry production volumes. JCI is well positioned with transplant manufacturers, providing a well-balanced customer profile. Although the traditional 'Big 3' represented about 35% of JCI's total customer exposure and 44% of automotive customers in 2004, transplants account for more than 30% of JCI's North American automotive business. The controls and battery segments, which provide attractive balance, have also shown steady growth and enhance JCI's consolidated risk profile.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.