OREANDA-NEWS. March 16, 2016. Fitch Ratings has assigned a 'BBB+' to Fluor Corporation's (FLR) announced EUR500 million senior unsecured notes maturing in 2023.

The issuance is to partially fund the EUR695 million acquisition of Stork Holding B.V. (Stork) on March 1st 2016. FLR has given notice to all holders of Stork Technical Services HOLDCO, B.V. 11% Super Senior Notes due 2017 of the full redemption of the outstanding EUR272.5 million (or approximately \\$295.6 million) principal amount of Stork notes on March 17, 2016. The redemption will be funded with additional borrowings under the company's \\$1.7 billion credit facility which Fitch expects to be repaid from cash on hand and the net proceeds from this offering. Stork Technical Services HOLDCO, B.V. is a subsidiary of Stork.

KEY RATING DRIVERS

Fluor's ratings are supported by the company's well-established position in global engineering and construction markets, consistently positive free cash flows, solid backlog, diverse project portfolio, and effective risk management. Fluor's liquidity and experience in its core engineering and construction markets mitigate the risk of large project losses. In addition, its global scale and flexible cost structure mitigate the impact of cyclicality.

Fluor has been able to maintain a healthy backlog despite significant demand pressures and cancellations in its Industrial & Infrastructure segment. The company has maintained stable backlog in its Oil and Gas segment in 2015 notwithstanding industry wide project delays and cancellations driven by the pressured crude oil prices beginning in Q4 of 2014. Fluor's ability to continue to win new awards in an adverse market, its global footprint, adequate financial flexibility and effective risk management support Fitch's ratings and the Stable Outlook. Despite stable backlog in its Oil and Gas segment, Fitch is concerned with the diminishing global demand for oil which may negatively impact downstream business in late 2016 and 2017, resulting in potential project delays in FLR's current backlog.

FLR's adjusted debt/EBITDAR was 1.4x as of December 2015, up slightly from the 1.3x at the same time prior year, driven by a 20% reduction in EBITDAR. Fitch capitalizes operating leases as part of the company's adjusted debt figure. FLR's FFO adjusted leverage was approximately 1.7x as of December 2015, down from 1.9x in December of 2014.

Fitch remains concerned that based upon Fitch's expectations; FLR will have a reduced margin profile over the medium to long-term. FLR has historically generated an EBITDA margin well below the 6.6% and 6.3% figures posted in 2014 and 2015 respectively, and Fitch expects FLR to have an EBITDA margin in the mid-to-low 5% range for full year 2016, largely driven by the change in the sales mix. Fitch is concerned that lower margins combined with the higher debt levels may result in prolonged elevated leverage.

Other rating concerns include the shifts in FLR's end market concentrations over recent years. In 2013 FLR's Industrial & Infrastructure (I & I) sector represented 40% of the company's revenue. In 2015, mostly driven by declines in mining volume, I & I represented 23% of revenue. In addition, the Power segment has remained flat at 5% of the company's revenue since 2013, though this share should rise incrementally in 2016 due to the Westinghouse projects and new gas-fired power plant awards. Alternatively, FLR's Oil & Gas segment has grown in share from 43% in 2013 to 55% in 2015. This increased energy concentration is partly the result of FLR's success in replacing delayed upstream projects in this segment with downstream and petrochemical projects in 2014 and 2015.

KEY ASSUMPTIONS

--Capex remaining at roughly 1.3% of revenue annually;
--Soft organic revenue growth over the medium term;
--EBITDA margins in the mid-to-low 5% range over the medium term.

RATING SENSITIVITIES

Negative: Future developments that may individually or collectively cause Fitch to consider a negative rating action include:

--Sustained Adj. Debt/EBITDAR above 2.25x;
--Sustained FFO adjusted leverage above 2.75x;
--FCF margins consistently below 1%;
--Additional debt issuance to fund shareholder-friendly activity.

A positive rating action is unlikely in the near term given Fitch's expectation of the higher leverage and the weakness in some of FLR's end markets. Future developments that may individually or collectively cause Fitch to consider a positive rating action include:

--Sustained Adj. Debt/EBITDAR below 1.5x;
--Sustained FFO adjusted leverage bellow 2x;
--FCF margins consistently above 1.5%;
--Lack of material project losses.

LIQUIDITY

The company held approximately \\$2 billion in available cash and short-term marketable securities, which included \\$754 million of advance billings of customers on contracts as of Dec. 31, 2015. FLR does not currently consider any cash to be permanently reinvested overseas though non-U.S. cash and equivalents amounted to \\$1.3 billion as of Dec. 31, 2015, up from \\$1.1 billion in the previous year. FLR retains adequate liquidity and financial flexibility aided by the lack of near-term maturities and stronger recent cash flow generation with a full-year 2015 FCF margin of 2.4%, up markedly from the 0.25% figure in 2014. Liquidity also includes availability under two revolving credit facilities totalling \\$1.75 billion. Both of the company's credit facilities mature in 2021.

FULL LIST OF RATING ACTIONS

Fitch currently rates FLR as follows:

--Long-term IDR at 'BBB+';
--Senior unsecured bank facility at 'BBB+';
--Senior unsecured notes at 'BBB+'.
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

The Rating Outlook is Stable.