NWL - Newell Brands is cut to junk rating at S&P Global

2023-03-20 13:39:02 ET

S&P Global Ratings lowered its long-term issuer credit rating on Newell Brands ( NASDAQ: NWL ) to BB+ from BBB- and dropped the commercial paper rating to B from A-3. A negative outlook was set on the consumer and commercial products manufacturer.

The rating agency said the actions reflect the deterioration in Newell Brands' ( NWL ) credit metrics and uncertainty of when they will be restored back to target levels.

While Newell has a publicly stated 2.5X net leverage financial policy target, S&P noted debt has increased over the last year due to capital allocation decisions by Newell management and weaker demand for the company's products amid the challenging macroeconomic backdrop.

"These dynamics raised leverage higher than our previous expectations and may potentially keep it elevated through 2024. We project leverage of about 4.8x for fiscal year 2023, slightly higher than its leverage of about 4.6x in fiscal 2022. These levels are above the mid-3x actual results and expectations that led to its prior upgrade to investment grade in early 2022."

Newell Brands ( NWL ) is noted to have made a $325M share repurchase in FY22, which reduced its cash balance ahead of weaker expected macroeconomic conditions and consumer spending patterns. The company has also continued to pay its sizeable dividend of $400M annually despite generating negative cash flow.

S&P believes Newell Brands ( NWL ) is not committed to a financial policy that supports an investment-grade rating because it prioritized shareholder returns over debt reduction. In addition, the ratings agency believes NWL cannot materially reduce its current short-term debt balance in 2023 and 2024 because of the projected $200M of discretionary cash flow generation in total over the two-year period. Adding to the burden, S&P said NWL will likely have to refinance some maturities or borrow to repay them, which will likely increase its debt levels and interest burden which could put pressure on its ability to meet its interest coverage covenant of 3.5X.

On the macro front, Newell Brands' ( NWL ) discretionary product portfolio is expected to continue to experience volatility over economic cycles.

Dig into the Seeking Alpha Quant Rating on Newell Brands.

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