DBRS Rates Textron Inc.’s New Issue at BBB (low), Negative

DBRS has today assigned a rating of BBB (low) to the proposed new issuance of senior unsecured notes by Textron Inc. (Textron or the Company). The trend is Negative. Proceeds from the issuance will be used for general corporate purposes, which are expected to include debt repayment. In tandem with the planned new debt issuance, the Company announced a cash tender offer for up to $650 million of five separate series of outstanding debt securities of Textron and Textron Financial Corporation (TFC), its wholly owned finance subsidiary.

The impact of the debt issuance is expected to be relatively modest on Textron’s financial profile. While terms of the debt issuance and final allocation of debt redemption between Textron and TFC have not been finalized, leverage at the Textron manufacturing level is unlikely to materially change. The expectation for an extension in the Company’s debt maturity schedule is viewed favourably as this would reduce refinancing risk, which has contributed to the pressure on Textron’s ratings since late-2008/early-2009. However, a positive rating action related to today’s announcement is not warranted.

DBRS expects to address the Negative trend on Textron’s ratings following Q3 2009 financial results, which are expected to provide increased visibility regarding the outlook for the business-jet market and Textron’s financial profile over the near to medium term. The eventual turnaround at its Cessna division remains key to Textron’s profitability, and there are signs that demand is stabilizing (albeit at low levels). In addition, the Company has been diligent in reducing debt, which has included open-market cash purchases of its debt securities during the current quarter. Furthermore, liquidity concerns at TFC have moderated from previous quarters as liquidation of its non-captive receivables portfolio continued to track ahead of schedule in Q2 2009. As such, the trend could be returned to Stable should Textron’s financial profile stabilize from current levels, with increased visibility regarding a gradual improvement in its credit metrics to levels more appropriate for the ratings. However, the Company continues to face several downside risks, and a delayed improvement in macroeconomic conditions, weaker-than-expected financial results at Cessna and/or higher leverage could lead to a downgrade.

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.