Praxair Inc. Ratings Affirmed On Downgrade Of Merger Partner Linde AG; Off CreditWatch; Outlook Stable

Rating Action Overview
  • S&P Global Ratings lowered its ratings on Linde AG to 'A' from 'A+' to reflect our view that the company's financial policy and commitment to credit quality following its combination with Praxair Inc. will be consistent with an 'A' rating, not 'A+' as we previously expected.
  • Consequently, we are affirming all our ratings on Praxair, including the 'A' issuer credit rating, 'A' issue-level ratings, and 'A-1' short-term ratings. We are removing the ratings from CreditWatch, where we placed them with positive implications on June 6, 2017, following the announcement of the merger with Linde.
  • The stable outlook reflects our expectation that management will be committed to maintaining credit metrics on a combined basis appropriate for the rating, such that the ratio of funds from operations (FFO) to total debt will average at least 30%.
Rating Action Rationale
NEW YORK (S&P Global Ratings) Jan. 29, 2019—S&P Global Ratings today took the 
rating actions listed above. The affirmation of all ratings on Praxair and 
their removal from CreditWatch reflects our view that credit quality on a 
combined basis including Linde AG will be consistent with an 'A' rating. We 
are removing our ratings from CreditWatch because it is no longer highly 
likely that we would raise our ratings on Praxair. Our rating action follows 
our downgrade of Linde to 'A' from 'A+'. This reflects our determination that 
recent announcements by newly created parent Linde PLC regarding plans for 
shareholder rewards and commitment to credit quality are likely to result in a 
financial risk profile consistent with our 'A' issue credit rating. 

The stable outlook reflects S&P Global Ratings' view of the combined entity's 
resilient business and commitment to balance growth investments and 
shareholder returns commensurate with an 'A' rating, including an FFO-to-debt 
ratio averaging at least 30%. We note the increased profitability of the 
combined entity, and its substantial generation of free operating cash flow 
(FOCF) of $3 billion-$3.5 billion per year, resulting in substantial headroom 
for the rating in 2019 and 2020 at our forecast of adjusted FFO to debt at the 
higher end of the 35%-40% range.

Downside scenario
We could lower the rating if the group adopts a more aggressive or 
shareholder-friendly financial policy, leading to increased leverage. 
Specifically, we would consider a downgrade if adjusted FFO to debt falls 
below 30% without prospects of a rebound, or if the company announces a plan 
that weakens the ratio below 30%.

Upside scenario
A positive rating action is unlikely at this stage, given our view of 
financial policy and management's commitment to the 'A' rating. However, we 
could consider an upgrade if adjusted FFO to debt remains sustainably above 
35% and management commits itself to maintaining the ratio at this level.
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