Morningstar DBRS Places Honeywell International Inc.'s Credit Ratings Under Review With Negative Implications Following Announcement of Intent to Separate Automation and Aerospace Segments

DBRS Limited (Morningstar DBRS) placed all credit ratings of Honeywell International Inc. (Honeywell or the Company) Under Review with Negative Implications. This follows the Company's announcement of its intent to pursue a full separation of its Automation and Aerospace Technologies (Aerospace) businesses. The planned separation, coupled with the previously announced plan to spin-off Advanced Materials, will result in three publicly listed industry leaders with distinct strategies and growth drivers. The Aerospace and Automation separation is intended to be completed in the second half of 2026. The spin-off of the Advanced Materials business should be completed earlier, by the end of 2025 or in early 2026.

The Under Review with Negative Implications status reflects Morningstar DBRS' expectations that the portfolio action of splitting up the Aerospace and Automation businesses into separate business units will negatively impact the Company's business risk profile, including leading to a smaller size and less product and market diversification. This should be partially offset by the advantages of a simplified operating structure, improved strategic focus, and favourable capital structures across the three segments. Morningstar DBRS notes that in 2024, the Automation business accounted for $18 billion in sales and an EBITDA margin of approximately 23%, and the Aerospace segment accounted for $15.5 billion in sales and an EBITDA margin of above 26%. Additionally, the Advanced Materials business accounted for $4 billion in sales with EBITDA margins exceeding 25%. Morningstar DBRS notes that although the Aerospace and Automation businesses individually may have a relatively weaker business risk profile compared to the business risk profile of the combined entity, they are expected individually to retain solid investment grade business risk profiles. Also, Morningstar DBRS expects the businesses to have credit risk metrics similar to the credit risk metrics of their respective investment-grade segment peers; However, stand-alone credit ratings can only be confirmed when there is clarity on the individual business unit's capitalization and capital allocation plans.

In its review, Morningstar DBRS will focus on (1) the individual capitalization plans of the Aerospace and Automation businesses, (2) their respective longer-term business strategies, and (3) long term capital allocation plans. Morningstar DBRS expects to receive the information and resolve this review by H2 2026.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

Please note that the above press release was amended on February 11, 2025, to remove the confirmation of the credit ratings. This was a clerical error and the credit rating actions in the press release are now correct

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in Manufacturing and Production Industries (February 03, 2025)
https://dbrs.morningstar.com/research/447185

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 03, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024),
https://dbrs.morningstar.com/research/437781
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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