Moody’s assigns Eaton notes Baa1

Moody's Investors Service said it assigned a Baa1 rating to Eaton Corp.’s proposed euro-denominated senior unsecured offering.

Proceeds will be used to refinance most of Eaton's outstanding notes coming due in the first half 2017.

The new notes will be issued by an Ireland-based subsidiary of Eaton, Eaton Capital Unltd. Co., and will benefit from substantially the same guarantees of Eaton's outstanding senior unsecured notes.

The outlook is stable.

Moody’s said the Baa1 rating reflects the company’s significant scale, track record of profitability and free cash flow generation.

While Eaton benefits from product and geographic diversification, weakened demand for industrial products in many regions driven by sustained low commodity prices creating unfavorable conditions, and as the company is likely to see pressure on orders and pricing. In response, the company commenced a three-year cost reduction and restructuring plan in 2015 which should help support profitability.

The agency expects somewhat lower margins for 2016 and 2017, as well as debt to EBITDA and EBITA to interest coverage around 3 times and 9 times, respectively, which is somewhat weak compared to other companies at the Baa1 level.

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