DBRS Morningstar Confirms Honeywell’s Issuer Rating and Senior Unsecured Rating at “A”, Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Honeywell International Inc. (Honeywell or the Company) at "A" and the Company’s Short Term Debt rating at R-1 (low), both with Stable trends. Honeywell's operating results and key credit metrics weakened in the first half of 2020 (H1 2020) because of a sharp deterioration in conditions in most of its markets caused by lockdowns to control the spread of the Coronavirus Disease (COVID-19). Nevertheless, the Company's credit profile (a combination of its business profile and financial profile) remains acceptable for the current ratings despite weaker debt coverage ratios. Furthermore, DBRS Morningstar expects the Company's operating results to start recovering in Q4 2020 and restore the key debt coverage ratios to within the current rating range towards the end of 2021.

The Company's strong business profile provides the key support for the current ratings. Honeywell is well diversified in products and geographical markets with a leadership position in most of its businesses. The breadth of the Company's businesses portfolio has helped to moderate the impact of the coronavirus on its operating results. The Company's commercial aerospace business, part of Aerospace (Aero), the largest business segment, was materially affected by the collapse of air travel because of the coronavirus. The downturn in the oil and gas industry has also meaningfully affected the Company's Performance Materials and Technologies business segment. In contrast, the Company's safety products and supply chain and warehouse automation equipment business, part of the Safety and Productivity Solution (SPS) business segment, are benefiting from increasing demand because of the coronavirus, though these businesses are of a more moderate scale. Furthermore, the Defense and Space business, another subsegment of Aero, is not affected by the condition of the general economy, lessening the impact of the coronavirus-induced recession on the Company. Additionally, Honeywell's strong technological capabilities and focus on operating efficiencies also strengthen the competitiveness of its portfolio of businesses and sustain its strong business profile.

Actions taken by governments to control the spread of the coronavirus depressed economic activities and caused meaningful disruptions to the supply chain globally. Slowing industrial activities and the near shutdown of air travel have materially affected Honeywell's operating performance, especially in Q2 2020. Despite timely actions to adjust to deteriorating market conditions, all business segments reported meaningful decline in net sales and operating profits in H1 2020 compared with the same period the year prior. Lower operating results weakened the Company's credit metrics and financial profile correspondingly. Additionally, the Company raised about $6 billion of debt in Q2 2020 to bolster its cash position ($15.1 billion as at June 30, 2020), significantly higher than historic levels aimed at increasing liquidity and financial flexibility in times of uncertainties caused by the pandemic. This added debt has further depressed the key debt coverage metrics (as measured by DBRS Morningstar).

DBRS Morningstar, in its base case scenario, assumes that (1) GDP will decline in 2020 by 5% in the U.S. and by 7.3% in Europe but will grow in 2021 by 4.5% in the U.S. and 5.0% in Europe, and (2) economic conditions in most of Honeywell's markets bottom in Q2 2020, stabilize in Q3 2020, and improve in Q4 2020 through 2021. Under this scenario, DBRS Morningstar expects Honeywell's operating results to stage a recovery in Q4 2020 and gain momentum through 2021. Under the base case, DBRS Morningstar expects Honeywell's financial profile to weaken in 2020 and recover in 2021 to levels within the range for the current rating.

DBRS Morningstar expects the ratings to remain stable in the near term but would take negative rating action if Honeywell's financial profile is unlikely to strengthen by the end of 2021 as assumed in DBRS Morningstar's base case scenario. Furthermore, DBRS Morningstar does not anticipate taking any positive rating action in the near term in view of the challenging market conditions.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Companies in the Industrial Products Industry (February 5, 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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