Spectrum Brands Holdings Inc. Downgraded To 'B', Outlook Negative On Reduced Expected Demand Due To The Coronavirus

  • We expect the U.S.-based Spectrum Brands Holdings Inc.'s operating performance to be negatively impacted due to the increasing probability of weakening demand amid the Covid-19 pandemic and global recession.
  • We are lowering our issuer credit rating on Spectrum to 'B' from 'B+'.
  • At the same time, we are lowering our issue-level rating on the company's $800 million revolver to 'BB-' from 'BB' and our issue-level rating on its senior unsecured notes to 'B' from 'B+'. We are also revising our recovery rating on the unsecured notes to '4' from '3', though our '1' recovery rating on the revolver remains unchanged.
  • The negative outlook reflects the potential for a lower rating in the next 12 months if the company's operating performance declines substantially amid the Covid-19 pandemic and global recession, and adjusted debt to EBITDA is sustained above 7x.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above.
Sales and profit will decline due to the Covid-19 pandemic and global recession, causing its credit metrics to deteriorate.  The company's operating performance is susceptible to consumer discretionary spending and the ongoing emphasis on social distancing to reduce the spread of the coronavirus will likely weigh dramatically on consumer spending in 2020. In addition, it is possible that the U.S. could be in a protracted recession following the economic shock from COVID-19. Therefore, we see an increasing probability of weakening demand due to the disruption of consumer discretionary spending, which could cause the company's profits and cash flow to deteriorate materially. We view the company's Hardware and Home Improvement (HHI) and Home and Personal Care (HPC) segments as more susceptible to an economic downturn than its other businesses.
The negative outlook reflects the potential for a lower rating in the next 12 months if the company's operating performance decline substantially amid Covid-19 pandemic and global recession.
We could lower the rating if the housing market, new builds and remodel activities slow significantly, leading to substantial decline in its HHI segment, or if disruption in consumer discretionary spending leads to meaningful weaker demand in HPC segment leading to a significant pressure on profitability and causing leverage to increase over 7x on sustained basis. We could also lower our rating if the company's covenant cushion narrows significantly and drops below 10%.
We could revise our outlook on Spectrum to stable if its business model appears resilient despite the slowing economy and the company improves its profitability, significantly reduces its restructuring costs, and benefits from its global productivity improvement plan such that its leverage remains below the mid-5x area.
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