OREANDA-NEWS. Fitch rates Newell Rubbermaid, Inc.'s (Newell) $300 million senior unsecured notes due 2018 and $300 million senior unsecured notes due 2025 'BBB+'. Fitch also affirms Newell's 'BBB+' long-term Issuer Default Rating (IDR) and 'F2' short-term IDR. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

Proceeds from the new notes will be used to fund the recently announced $600 million purchase of Elmers Products, Inc. (Elmers) as well as for general corporate purposes. If the acquisition is terminated or doesn't close on or prior to June 28, 2016, the note is subject to a special mandatory redemption at 101% of the initial issue price plus accrued interest.

The new notes also contain a Change of Control Repurchase Event. Upon the occurrence of both a Change of Control and ratings below investment grade by at least two of the three rating agencies and unless Newell exercises its right to redeem the notes, the company will be required to make an offer to purchase the notes at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest.

KEY RATING DRIVERS

Improved Business Profile

Fitch views the company's effort to reshape its portfolio towards businesses and categories that have higher margins, are less cyclical or have better revenue growth prospects as a credit positive. Since the last recession, Newell has divested or exited more than $1 billion (18% of 2009 revenues) in product lines or businesses sensitive to commodities such as resin, generated low margins or minimal growth prospects, or provided little brand differentiation. The Elmers acquisition should be accretive to earnings and cash flow and more importantly improves the company's overall business profile given that it has low cyclicality. It is a seasonal business however and in-line with the back to school selling cycle.

Divestitures have been aligned with the company's growth and profitability goals. Concurrent with the Elmers acquisition Newell announced that the highly cyclical Levolor and Kirsch window coverings brands are slated to be sold. The company's Endicia brand which provided B to B global online shipping solutions was also sold earlier this year for $215 million. The Endicia sale to Stamps.com is awaiting regulatory approval.

Newell has undertaken several restructuring actions to reduce fixed overhead and increase the variable portion of its cost structure. EBITDA margins have improved to 17%, up sharply from the 12% seen in the cyclical trough in 2008 and should increase further with top line improvements as well as positive mix from accretive acquisitions. Since the portfolio is moderately less cyclical due to some of the business line exits, Fitch expects less pronounced variability in revenues and margins during cyclical peaks and troughs going forward.

Fitch estimates that the portion of Newell's product lines facing cyclical end-users or markets such as the Tools segment, or higher end products in other segments such as Calphalon cookware in Home Solutions, has declined modestly in the past two years to approximately 60% at the end of 2014 and should be roughly in the 55% range with the Elmers acquisition and the window coverings dispositions.

Strong FCF Generator Despite Cyclicality

Importantly, despite the fact that Newell has been restructuring for much of the past decade that included several economic downturns, it has generated positive free cash flow (FCF) in every year since 1996. Newell's FCF ranged from $250 million to $315 million annually over the past four years despite significant cash restructuring and pension payments. Fitch expects FCF to improve to the $350 million to $400 million range over the next two years.

Pro-Forma Leverage Higher than Expected

With the $600 million in debt, Fitch expects pro forma leverage near 2.8x at the end of this year. This is higher than our initial 2.3x expectations. However, leverage is expected to decline to under 2.5x at the end of 2016 with EBITDA growth. Fitch expects the company to prudently balance discretionary activities. Additional sizeable acquisitions that result in leverage being sustained over 2.5x after 2016 is likely to have negative rating implications.

KEY ASSUMPTIONS

--Newell maintains SG&A/Sales in the 25% range, and gross margins remain near current levels.
--Mid-single digit organic growth and contributions from late 2014 acquisitions are expected to fully offset currency pressure and lead to meaningful improvement in FCF to the $350 million to $400 million level in 2015-2016 compared to an average of $287 million over the past four years.
-- Barring meaningful acquisitions and/or shareholder friendly actions, Fitch expects that the company can sustainably operate with leverage of 2x-2.3x and should be in this range after 2016.

RATING SENSITIVITIES
What could trigger a positive rating action:
--Given Fitch's expectation that leverage will be maintained in the 2.3x range and a product mix that remains meaningfully susceptible to macro-economic shifts, ratings upside is not anticipated in the intermediate term.

Future developments that may, individually or collectively, lead to a negative rating action include:
--Top line deceleration or margin deterioration, or a deep and lengthy downturn of one or more major markets that causes FCF to decelerate meaningfully and leads to sustaining leverage above 2.5x. Newell's profitability and cash flows have historically bounced back to normal levels within 12 - 18 months after the end of previous economic downturns;
--Intention of sustaining leverage above 2.5x caused by a change in management's financial strategy or a sizeable debt-financed acquisition.

LIQUIDITY

Ample Liquidity, Moderate Maturities

Liquidity is ample. The company had almost $240 million of cash, much of which is offshore, and $850 million in availability under its credit facilities at June 30, 2015. The $850 million is comprised of an $800 million revolving credit facility due December 2019 and a $50 million of unused availability under its $400 million receivable securitization facility maturing September 2016. There is no long-term debt maturity in the next two years.

FULL LIST OF RATING ACTIONS

Fitch has taken the following rating actions on Newell:

--Long-term Issuer Default Rating (IDR) affirmed at 'BBB+';
--$800 million revolving credit facility affirmed at 'BBB+';
--Senior unsecured notes rated 'BBB+';
--Short-term IDR affirmed at 'F2';
--Commercial paper affirmed at 'F2'.

The Rating Outlook is Stable.