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Fitch Downgrades Fortune Brands to 'BBB-'; Outlook Negative

  //house-home.news-articles.net/content/2009/02/0 .. ades-fortune-brands-to-bbb-outlook-negative.html
  Published in House and Home on Thursday, February 5th 2009 at 14:39 GMT, Last Modified on 2009-02-05 14:40:08 by Market Wire

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has downgraded the following ratings of Fortune Brands, Inc. (NYSE: FO):

--Issuer Default Rating (IDR) to 'BBB-' from 'BBB';

--Short-term IDR to 'F3' from 'F2';

--Commercial paper to 'F3' from 'F2';

--Revolving credit facilities to 'BBB-' from 'BBB';

--Term loan to 'BBB-' from 'BBB'

--Senior unsecured notes and debentures to 'BBB-' from 'BBB'.

The Rating Outlook remains Negative. Approximately $4.7 billion of debt is affected by these rating actions.

While 2008 results were modestly weaker than previously anticipated, the outlook for 2009 has turned sharply lower. It is unlikely that there will be any turnaround in housing in 2009 and repair/remodeling activity is also expected to meaningfully decline again in 2009. Continuing very weak earnings in the home and hardware segment are anticipated. Spirits and golf are likely to be pressured as well. Spirits could see trading down to less expensive items and experience slower growth in global liquor consumption. Golf may suffer from deteriorating discretionary consumer spending affecting purchases of more expensive items, particularly golf clubs. As a result, free cash flow is expected to be down significantly in 2009, debt repayment reduced, and credit metrics are likely to be much weaker than originally forecasted.

Total debt/EBITDA is estimated at 3.6 times (x) at year-end 2008 while EBITDA/interest amounted to 5.6x. These measures are expected to worsen in 2009 with total debt/EBITDA likely above 4x and EBITDA/interest potentially falling below 5x. Both measures are weaker than Fitch was previously anticipating. Weakened credit protection measures could persist into 2010.

The ratings also reflect FO's solid business profile with strong market shares, generally stable spirits operations, and strong free cash flow generation (after capital expenditures and dividends). Diversification efforts, particularly with regard to spirits, have placed the company in better position to weather the currently weak global economy.

The Negative Outlook reflects Fitch's pessimism for any near term rebound in global economic conditions. It also reflects the potential for credit metrics to remain weak for a prolonged time despite the expectation that debt will be reduced over the next couple of years. Key to any further rating action over the upcoming year will be the performance of the spirits operations and its ability to sustain reasonable cash flow generation.

Because of an intensifying domestic housing downturn, an Australian excise tax increase on ready-to-drink spirits products, and softness in golf, operations were weak in 2008 with no upturn in sight. FO reported a 27% operating income decline in 2008 to $1.1 billion (before impairment charges and restructuring and restructuring-related items). All operating segments experienced a decline which was particularly sharp for home and hardware (down 42%) and golf (down 25%).

For additional information see Fitch's press release dated Dec. 18, 2008 at [ www.fitchratings.com ].

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.