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Fitch Rates Whirlpool's Proposed Offering of $250MM Sr. Unsecured Notes 'BBB'

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  Published in House and Home on Thursday, June 2nd 2011 at 17:40 GMT by Market Wire
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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has assigned a 'BBB' rating to Whirlpool Corporation's (NYSE: WHR) proposed offering of $250 million of 10-year senior unsecured notes. The issue will be ranked on a pari passu basis with all other senior unsecured debt. WHR intends to use the proceeds from the notes offering to refinance an upcoming debt maturity and for general corporate purposes. The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.

WHR's ratings and Outlook reflect its position as the world's largest appliance manufacturer, with leading market positions in many regions. WHR's global operating platform, increased manufacturing efficiency and innovation capabilities have enabled it to improve its cost structure, compete more effectively around the world, and adjust to escalating material costs. Risks include intense global competition, volatility of raw material costs, sensitivity to business cycles, and ongoing regulatory and legal issues.

WHR's key credit metrics have strengthened significantly since 2009's low point. The company's leverage as measured by debt to EBITDA declined significantly to 1.6 times (x) during the latest 12 month (LTM) period ending March 31, 2011 from a peak of 2.7x during the LTM period ending Sept. 30, 2009. Similarly, interest coverage improved to 7.3x during the LTM period ending March 31, 2011 from 4.7x for the LTM period ending Sept. 30, 2009. Fitch expects these credit metrics to remain relatively stable during fiscal 2011.

The company has achieved improved profit margins over the past year, with operating EBITDA margins reaching 8.9% in 2010 compared with 7.8% in 2009 and 6.8% in 2008. Fitch believes that this margin level is sustainable this year despite expected inflation in raw material costs, particularly steel, plastic resins and base metals. Management estimates raw material costs will rise $400 million-$450 million in 2011 compared with a $217 million increase in 2010. Fitch believes that moderately higher global unit shipments, recently announced pricing increases and the benefits of business rationalization initiatives implemented in recent years will offset a majority of the inflation in raw material costs this year.

The near-term operating outlook for global appliance demand remains relatively positive despite lingering difficulties in the U.S. housing market, continuing challenges in Europe, and higher material and energy costs. In the U.S., Fitch currently projects housing starts will increase 10.2%, while existing home sales are expected to remain flat during the year. Home improvement spending in the U.S. is projected to grow 4% in 2011. Internationally, appliance demand in Brazil and India is expected to remain at strong levels as their economies continue to show solid growth.

WHR has solid liquidity with cash of $1.02 billion as of March 31, 2011 and no borrowings under its $1.35 billion revolving credit facility maturing in August 2012. However, the company's debt maturities are concentrated over the next four years, with roughly $1.75 billion or 72% of its total debt coming due between 2011 and 2014. The proposed debt offering addresses the company's upcoming $300 million debt maturity in June 2011. While the company has sufficient cash and revolver availability to repay debt coming due in the next few years, Fitch expects the company will again access the debt markets to refinance some of these upcoming debt maturities.

Fitch anticipates the company will continue to generate free cash flow (FCF) during 2011, although at a lower amount compared to the $353 million realized during 2010. The projected decline in FCF is due primarily to increased U.S. pension contributions in 2011, which are forecast to be $300 million. Nevertheless, continued FCF generation should further enhance the company's liquidity position, allowing for potential debt reduction during the next several years.

The company has ongoing regulatory and legal issues that can negatively affect the company's financial profile. In particular, there are antitrust investigations relating to WHR's compressor business and collection disputes with regard to a Brazilian subsidiary. While the company has accrued roughly $381 million (of which $88 million has been paid out) relating to these contingent liabilities, the potential liability could be significantly higher than this amount.

Fitch currently rates WHR as follows:

Whirlpool Corporation

--Long-term Issuer Default Rating (IDR) at 'BBB';

--Short-term IDR at 'F2';

--Commercial paper at 'F2';

--Senior unsecured notes at 'BBB';

--Bank revolving credit facility at 'BBB' (Whirlpool Corp., Whirlpool Europe B.V., Whirlpool Finance B.V. and Whirlpool Canada Holding Company as borrowers).

Maytag Corporation

--Long-term IDR at 'BBB';

--Senior unsecured notes at 'BBB'.

Whirlpool Finance B.V.

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

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:

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]

Liquidity Considerations for Corporate Issuers

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666 ]

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