Moody’s upgrades Brunswick ratings

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Moody’s Investors Service upgraded Brunswick Corp.’s ratings, citing steady improvement in the company’s operating performance and credit metrics.

The firm also said Brunswick's operating performance has improved enough that the company could withstand a reasonable economic downturn and still maintain a credit profile consistent with its new ratings.

The corporate family rating was bumped from Ba2 to Ba1, which means the stocks are still subject to speculative elements and a high credit risk. The rating reflects the highly discretionary nature of pleasure boats and marine-related products, which makes Brunswick's revenue and earnings highly sensitive to economic weakness.

However, the upgraded rating outlook is stable.

"In our view, Brunswick's operating performance will continue improving as discretionary consumer spending modestly grows and new products are introduced," Moody's Investors Service senior credit officer Kevin Cassidy said in a statement.

“This was demonstrated during the recent economic downturn, when the company suffered a dramatic revenue and earnings decline. But the ratings also reflect the company's solid credit metrics,” the Moody’s statement read.

Because of Brunswick's sensitivity to macroeconomic conditions, its credit metrics need to be stronger than other similarly rated consumer durable goods companies, the firm said.

Brunswick's operating margins are the highest they have been since 2005 and Moody's expects additional growth in the next year or two as the company focuses on expanding its high-margin parts and accessories and Life Fitness businesses.

"While Brunswick remains cyclical and subject to fluctuations in discretionary consumer spending, its most volatile segment — boats — now represents about 25 percent of its revenue, versus over 40 percent prior to the economic downturn," Cassidy noted.

Moody’s expects additional credit metric improvement as the company's operating performance remains strong and marine industry demand steadily improves. Other factors supporting the rating are: relatively stable boating participation trends; good operating performance of Brunswick's dealership network; diversification away from its highly cyclical marine products; and the company's strong and growing parts and accessories business.

The stable outlook reflects Moody's view that Brunswick's revenue, earnings and credit metrics will continue improving. However, improvements are unlikely to warrant an upgrade in the near to intermediate term, the firm said. For Moody's to consider an upgrade, Brunswick must demonstrate its ability to maintain a very strong credit profile and a very good liquidity position in the face of a reasonable economic downturn.

In addition, Brunswick will need to further diversify its sales away from the more cyclical marine products (boats and engines, excluding parts and accessories) for an upgrade to be considered.

Ratings upgraded:

• Corporate Family Rating to Ba1 from Ba2

• Probability of Default Rating to Ba1-PD from Ba2-PD

• Senior unsecured and unguaranteed notes due 2023-2027 ($266 million outstanding) to Ba2 (LGD 6) from B1 (LGD 6)

• $150 million senior unsecured notes with subsidiary guarantees due 2021 to Ba1(LGD 4) from Ba2 (LGD 4)

Rating affirmed:

• Speculative grade liquidity rating at SGL-1