Fitch Ratings has affirmed the Issuer Default Rating (IDR) of E.I DuPont
de Nemours and Company's (NYSE:DD, DuPont) at 'A'. A full list of
ratings is provided at the end of this release.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Company Profile
The ratings reflect DuPont's strong business profile, robust liquidity,
and positive free cash flow (FCF) generation. DuPont benefits from
global reach, end-market diversification, and leading market positions.
The company's product portfolio is primarily R&D based and often patent
protected, enabling sustainable market advantages and high operating
profit margins. The consolidated operating EBITDA margin for the latest
12 months ending June 30, 2014 (LTM) was 16.8%.
Agriculture Growth
The Agriculture segment accounts for a third of DuPont's annual
operating income. The segment had modest declines in revenues and
operating profits in the first half on lower corn acreage planted and
inventory write downs and the third quarter is typically weak. The
fourth quarter should benefit from improved insecticide sales and
advanced seed sales. Longer term, Fitch expects the segment to continue
to show solid growth from its strong product portfolio and new product
launches.
Performance Chemicals
DuPont is proceeding with plans to spin-off its Performance Chemicals
segment, since it does not conform to the company's long-term strategic
plan. DuPont's Performance Chemicals segment accounts for 15% LTM
segment EBITDA and roughly half of its sales are titanium dioxide (TiO2)
products. DuPont is the largest TiO2 producer worldwide. The company is
currently working to reduce post-spin stranded costs. While the
spin-company's capital structure is unknown, Fitch expects the remaining
DuPont to maintain its financial profile.
Other Segment Expectations
Performance Materials, at 21% of LTM segment EBITDA, is expected to
benefit from strong automotive demand and resumed production at the
company's Orange, Texas ethylene unit. Sales are expected to be flat in
the third quarter as a result of the sale of the segment's Glass
Laminating Solutions/Vinyls business on June 5, 2014 for $639 million.
Safety & Protection, at 14% of LTM segment EBITDA, is expected to
continue to benefit from productivity improvements and stronger
industrial demand.
Nutrition & Health, at 9% of LTM segment EBITDA, is expected to benefit
from continued broad based volume gains and productivity improvement.
Industrial Biosciences, at 4% of LTM segment EBITDA, is expected to
continue to show good volume growth and higher profit margins. Fitch
expects Electronics & Communications, at 4% of LTM segment EBITDA, to be
relatively flat.
Leverage Expectations
DuPont generally manages its capital structure within Fitch's
expectations of net debt to EBITDA of 1.5x or lower and total debt to
EBITDA of 2x or lower. Net debt has been reduced with the proceeds of
the Performance Coatings sale in the first quarter of 2013. At June 30,
2014, total debt/LTM EBITDA was 1.97x.
Strong Liquidity
At Dec. 31, 2013, cash was $9 billion of which $3.9 billion was held
outside of the U.S. At June 30, 2014, cash on hand was $4.3 billion. The
bulk of the company's cash flow is generated in the fourth quarter and
Fitch expects Dec. 31, 2014 cash on hand to be roughly $6.8 billion. The
company has $4.9 billion of unused credit lines, of which $4 billion is
due in May 2019. The facilities are used to back-up commercial paper and
issue letters of credit. Short-term debt was about $1.1 billion at June
30, 2014. In January 2014, the board authorized $5 billion in share
repurchases of which $1.1 billion occurred in the first half of 2014 and
a further $0.9 million is expected in the second half.
Fitch expects DuPont to generate annual FCF after pension funding
requirements, capital expenditures and dividends of about $1 billion on
average. The company's defined benefit pension programs were in
aggregate 78.8% funded at the end of 2013. There were no contributions
to the main U.S. pension plan in 2013 and none is expected in 2014 but
future contributions could be on the order of $500 million to $1 billion
annually.
Near-term maturities of debt are $1.4 billion in 2015, $1.6 billion in
2016, $0 in 2017 and $1.4 billion in 2018.
RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating actions
include:
--Total debt to EBITDA below 1.5x on a mid-cycle basis in combination
with annual FCF over $1.5 billion.
Negative: Future developments that could lead to negative ratings
actions include:
--Leveraging transactions such as debt-financed share repurchases,
dilutive acquisitions, or spin-offs, resulting in total debt to EBITDA
greater than 2x on a sustained basis.
--Substantially diminished cash balances while gross leverage remains
above 2.0x;
--Weak or negative FCF leading to incremental borrowings.
Fitch has affirmed the following ratings:
E. I. DuPont de Nemours and Company
--Issuer Default Rating (IDR) at 'A';
--$3.5 billion unsecured bank revolver at 'A';
--Senior unsecured notes at 'A';
--Senior unsecured debentures at 'A';
--Short term IDR at 'F1';
--Commercial Paper at 'F1'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' May 28, 2014.
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=859994
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