DBRS Places Textron and Textron Financial Under Review - Negative

DBRS has today placed the Senior Debt and Commercial Paper ratings of Textron Inc. (Textron or the Company), Textron Financial Corporation and Textron Financial Canada Funding Corp. (collectively, TFC) Under Review with Negative Implications. The rating action follows today’s announcement by the Company that there will be additional production curtailments at its Cessna and Industrial businesses as market conditions continue to soften and credit markets facing TFC remain challenging. In light of the weaker outlook for Textron’s manufacturing operations, its credit metrics are likely to further deteriorate and reduce the potential for the Company’s financial profile to return to more appropriate levels for the current ratings (BBB (high) and R-2 (high)) over the medium term. DBRS expects to resolve the rating status over the coming month.

DBRS expects that the challenges at Cessna and most of Textron’s Industrial businesses will persist at least through 2009, chiefly due to further deterioration in macroeconomic conditions. Cessna is the largest contributor to the Company’s revenue and earnings, and slowing demand for business jets is likely to weigh most heavily on its operating results. DBRS is concerned that cash flow from Textron’s manufacturing operations could materially decline from previous expectations, and negatively impact coverage ratios. In addition, lower cash flow could contribute to additional net debt at the manufacturing level and further reduce financial flexibility, particularly given ongoing capital contributions to TFC and higher pension funding obligations.

DBRS will also reassess Textron’s ability to meet large debt maturities in 2010, which include $2.3 billion in term debt ($250 million for Textron, the remainder for TFC). Repayment of debt will likely be heavily dependent on the continuing wind-down of TFC’s non-captive operations and asset sales, which could prove more difficult as the year progresses should economic and credit market conditions deteriorate further. That said, the collection of finance receivables at TFC is currently ahead of plan ($800 million expected by end-Q1 2009) and liquidity in 2009 is not considered to be an issue for Textron following the full drawdown of its credit facility in Q1 2009 and the sale of HR Textron ($265 million after-tax).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating the Industrial Products Industry, which can be found on our website under Methodologies.

This is a Corporate rating.