Business & Finance
Business and Finance
Business and Finance
Tue, November 9, 2010
Mon, November 8, 2010 Fitch Expects to Rate PPG's $1B Sr Unsecured Notes 'A-'
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings expects to assign an 'A-' rating to PPG Industries, Inc.'s (NYSE: PPG) proposed offering of $1 billion of senior unsecured notes, comprising three tranches with maturities in 2016, 2020 and 2040. The notes will rank equally with all of the company's other senior unsecured debt. Proceeds from the notes offering will be used to repay a $400 million term loan, contribute to employee pension plans, fund certain asbestos claims and for other general corporate purposes.
Fitch currently rates PPG as follows:
--Long-Term Issuer Default Rating (IDR) at 'A-';
--Senior unsecured debt at 'A-';
--Short-Term IDR at 'F2';
--Commercial paper at 'F2'.
The Rating Outlook is Stable.
The ratings reflect a geographically well-balanced company with a primary focus on its coatings and optical businesses, consistent strong earnings, and excellent cash flow. Risk factors include the cyclicality of certain of PPG's end-markets, often volatile raw materials and energy costs, and the company's exposure to asbestos litigation.
The Stable Outlook reflects the company's strong liquidity position and Fitch's forecast of moderate growth in the global economy in 2010 and 2011, although the pace of expansion is expected to be modest by the standards of past recoveries. PPG ended the September 2010 quarter with cash of $930 million and no borrowings under its $1.2 billion revolving credit facility. The company continues to generate significant free cash flow (FCF), reporting FCF of $677 million for the latest-12-month (LTM) period ending Sept. 30, 2010. This compares to FCF of $753 million during fiscal 2009 and $632 million during fiscal 2008. The company remains disciplined in prioritizing the use of its cash and FCF. The company paid down approximately $200 million of debt so far in 2010 and has lowered its debt levels by roughly $1.07 billion since June 30, 2009. PPG has resumed some share repurchases during the last two quarters, spending $275 million year to date. The company also made voluntary contributions in the amount of $220 million to its pension plans this year.
The company has also lowered its leverage levels over the past year. PPG's leverage (Fitch-calculated ratio of debt to earnings before interest, taxes, depreciation and amortization) declined from 2.8 times (x) at June 30, 2009 to 1.8x currently. While the issuance of the new notes will initially increase PPG's leverage to roughly 2.1x on a pro forma basis, Fitch expects this ratio to fall below 2.0x in 2011 with the expectation of further improvement in profitability next year.
Fitch's rating takes into account the cyclicality of many of PPG's end-markets. Construction and automotive OEM account for between 35%-45% of its end-markets' sales. Fitch currently forecasts 2011 U.S. light vehicle production to exceed 2010 levels, although still low relative to levels achieved during 2000-2006. Fitch also forecasts total housing starts will improve 3.6% this year and increase as much as 16% in 2011, while home improvement spending is projected to grow 3.5% this year and 4% in 2011. Private non-residential construction spending (as measured by the Census Bureau) is projected to fall 20% in 2010 and 8% in 2011.
Additional information is available at '[ www.fitchratings.com ]'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2010);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007.
Applicable Criteria and Related Research:
Liquidity Considerations for Corporate Issuers
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666 ]
Corporate Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]
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