Moody's Downgrades Sherwin-Williams' Rating By Three Notches On Debt-financed Valspar Deal

By Ciara Linnane Markets MarketWatch Pulse

Moody's Investors Service on Tuesday downgraded ratings on paint and coatings company Sherwin-Williams Co. by three notches to Baa3 from A3 to reflect the company's debt-financed acquisition of Valspar Corp. for more than $11 billion. At the same time, it assigned a Baa3 rating to about $6 billion in new unsecured notes the company will issue as part of the deal. "While the acquisition of Valspar will clearly improve its cost position and prospects for international growth, it comes at a fairly high cost in terms of increased leverage," said John Rogers, senior vice president at Moody's. Sherwin-Williams will add more than $10 billion to its debt burden and see its credit metrics weaken substantially, said Rogers. Moody's estimates that debt/EBITDA will increase to 4.5 times pro forma for the deal before synergies from less than 1.5 times today. Earlier, S&P Global Ratings lowered its rating on Sherwin-Williams to BBB from A. On Monday, Fitch Ratings lowered its rating to A from BBB. The company's most active bonds, the 1.350% notes that mature in December of 2017, were last quoted at 99.88 cents on the dollar, according to MarketAxess.

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