Moody’s Investors Service confirmed Brunswick Corporation’s Baa2 senior unsecured rating. The rating outlook is stable.
The confirmation reflects Moody’s expectation that Brunswick’s credit profile will remain strong as it moves forward with the divestiture of its Life Fitness business and continues to focus on the more stable and profitable marine Parts & Services (P&A) business. The marine P&A business had sales of $1.4 billion in 2018, which represents more than 33 percent of the company’s marine revenue. Brunswick has made meaningful progress in reducing financial leverage over the last few years with pro forma debt/EBITDA approaching 2.5 times. Moody’s expects leverage to approach 2.0 times in 2019 through a combination of earnings growth and debt repayment with internally generated cash.
Rating confirmed:
- Senior unsecured notes at Baa2
The outlook is stable.
Ratings Rationale
Moody’s said Brunswick’s Baa2 senior unsecured rating reflects its strong position in the marine industry, the stabilityprovided by its Mercury parts & accessories business, and its very strong credit metrics. The rating also reflects Brunswick’s good operating performance and strength of its distribution network. The rating benefits from the fact that boating is a sector with relatively stable participation trends. Because of Brunswick’s sensitivity to macroeconomic conditions and discretionary spending, Moody’s expects the company’s credit metrics to be stronger than other similarly-rated consumer durable companies. Moody’s expects credit metrics to remain strong as the company’s operating performance remains solid and leisure marine industry demand steadily grows. Brunswick’s strong liquidity and seasoned management team also support the rating. Ratings are constrained by the discretionary nature of pleasure boats and marine-related products, which makes Brunswick’s revenues and earnings sensitive to economic weakness.
The stable outlook reflects Moody’s expectation that the company will maintain its strong operating performance, liquidity, and credit metrics. This will enable the company to maintain a solid credit profile, even in a moderate to significant economic decline.
Moody’s said an upgrade is possible if Brunswick can materially increase its revenues, and further diversify its business away from boats. Moody’s said it would also need to have a view that Brunswick would be able to maintain solid earnings and cash flow in the face of economic uncertainties. In addition, Brunswick would need to sustain debt/EBITDA below 1.5 times before Moody’s would consider an upgrade.
Ratings could be downgraded if there is a significant negative change in boating participation and/or boat ownership trends or the company’s operating performance otherwise weakens. Debt/EBITDA sustained above 2.5 times could also result in a downgrade.
