News Column

Fitch Places Whirlpool's Ratings on Watch Negative

July 14, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has placed Whirlpool Corporation's (NYSE: WHR) ratings on Rating Watch Negative following the company's announcement that it has entered into binding agreements to acquire a majority interest in Indesit Company S.p.A. (Indesit) for approximately $1.038 billion. The acquisition of the controlling interest in Indesit is subject to judicial and antitrust approvals and is expected to close by the end of 2014.

ACQUISITION AGREEMENT

Whirlpool has entered into the following binding agreements:

--Share repurchase agreement to acquire Fineldo S.p.A.'s stake in Indesit, representing about 42.7% ownership;

--Share repurchase agreement with certain members of the Merloni family for a 13.2% stake in Indesit;

--Share repurchase agreement with Ms. Claudia Merloni for a 4.4% stake in Indesit.

The total 60.4% of Indesit stock represented under the three agreements represent a 66.8% voting stock in the company (including the treasury shares held by Indesit).

Closings under the Fineldo and Merloni family agreements are subject to judicial and antitrust approvals. The closing of the agreement to acquire Ms. Claudia Merloni's 4.4% stake in Indesit is not subject to antitrust and court authorization conditions and is expected to take place within the next few business days.

Following the close of the acquisition of the Fineldo and Merloni family members' stakes, Whirlpool will launch a mandatory tender offer on all remaining shares of Indesit.

INDESIT ACQUISITION AND RATIONALE

Founded in 1975, Indesit is one of the leading European manufacturers and distributors of major appliances. Indesit has eight industrial sites (in Italy, Poland, the United Kingdom, Russia and Turkey) and approximately 16,000 employees.

During fiscal 2013, Indesit had sales of EUR2.67 billion and EBITDA of approximately EUR178.5 million. The company generated about 56% of revenues from Western Europe, 38% from Eastern Europe and 6% from non-European markets.

The proposed acquisition has good strategic rationale for Whirlpool. Indesit provides Whirlpool with a broader platform to expand its operations in Europe. Currently, about 16% of Whirlpool's revenues are generated from this region. On a pro forma basis (including Indesit), sales from Europe, Middle East and Africa will represent about 29% of Whirlpool's worldwide sales.

Appliance demand in Europe remains relatively weak. Whirlpool's sales in the EMEA region grew 8% during the first quarter of 2014 (1Q'14) compared with 1Q'13 but the 1Q'14 sales are still 13% below the 1Q'07 sales level. Indesit's revenues for the 1Q'14 were 6.6% lower compared with 1Q'13 sales, due to lower volumes and the negative effect of foreign currency translation. Fitch currently expects appliance sales in Europe will be flat to slightly higher in 2014 compared with 2013.

IMPACT ON RATINGS

While Fitch views the transaction as strategically positive for Whirlpool, negative rating actions are likely given the projected increase in leverage from higher debt levels (debt to be assumed and the debt incurred to finance the acquisition). In June 2014, Fitch affirmed Whirlpool's Issuer Default Rating (IDR) at 'BBB' and revised the Outlook to Positive from Stable with the expectation that the company's credit metrics continued to improve, including debt to EBITDA situating in the 1x-1.5x and interest coverage consistently above 10x. An upgrade of Whirlpool's ratings is now unlikely.

Fitch now estimates that the company's debt to EBITDA could be in excess of 2.0x and funds from operations (FFO) adjusted leverage could be 3.5x or higher by year-end 2015, depending on the amount of the acquisition price that will be funded by debt.

Whirlpool's IDR could be downgraded one-notch to 'BBB-'. Conversely, the company's ratings could also be affirmed at the current level should Whirlpool's credit metrics stay within the parameters of the 'BBB' rating level, including debt to EBITDA sustained in the 1.5x-2.0x range and interest coverage between 6.0x-10.0x.

Fitch will meet with management in the next month to review the transaction, including management's strategy to integrate the operations and Whirlpool's capital structure following the completion of the acquisition. Fitch expects to resolve the Rating Watch Negative upon the closing of the transaction and review of Whirlpool's financial and credit profile.

Fitch has placed the following ratings on Watch Negative:

Whirlpool Corporation

--Long-term 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 (CP) at 'F2'.

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=839279

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Robert Rulla, CPA

Director

+1-312-606-2311

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

Robert Curran

Managing Director

+1-212-908-0515

or

Committee Chairperson

Sean Sexton

Managing Director

+1-312-368-3130

or

Media Relations:

Brian Bertsch, New York, +1 212-908-0549

Email: brian.bertsch@fitchratings.com

Source: Fitch Ratings


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