Fitch puts Eaton on watch

Fitch Ratings said it placed the A- issuer default rating for Eaton Corp. on Rating Watch negative after the company announced plans to acquire Cooper Industries plc for about $11.8 billion, not including assumed debt.

The watch reflects the material increase in Eaton's pro forma leverage expected to result from the acquisition, Fitch said. The company's pro forma debt to EBITDA at closing will be about 3.3x compared with 1.7x at March 31.

Eaton plans to reduce leverage and return to stronger credit metrics within two to three years of the acquisition, the agency noted.

Fitch said it expects to downgrade the ratings by one notch to BBB+, given the company's high leverage immediately following the Cooper acquisition.

Concerns include normal integration risk, the cyclical nature of some of Eaton's end markets, low margins in the ROW electrical segment, slower growth in China, weakness in Europe and a sizable underfunded pension obligation, the agency noted.

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