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Published on 3/18/2009 in the Prospect News Investment Grade Daily.

S&P downgrades 3M

Standard & Poor's said it lowered the corporate credit and senior unsecured ratings on 3M Co. to AA- from AA and affirmed the A-1+ short-term credit rating.

The outlook is stable.

"The downgrade reflects a decline in still very strong debt-protection measures as a result of the weakened global economic environment that has trimmed EBITDA levels, along with rising debt levels," S&P analyst Philip Schrank said in a statement.

With the recent issuance of about $1.7 billion of debt, which enhanced liquidity, and significant growth in its tax-adjusted unfunded pension liabilities, the company's total debt-to-EBITDA ratio rose to 1.4x at year-end 2008 versus 0.8x in the previous year.

"We do not expect any material deleveraging over the near term, given the very difficult global economic outlook, which will continue to pressure profits, and the company's limited debt maturity schedule," Schrank said.

"However, it is our opinion that 3M will generate significant discretionary cash flow (after dividends and capital expenditures) over the next two years, a portion of which can be used to repay maturities and increase other post-employment pension funding."


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