Frankfurt, March 15, 2002 — Moody’s Investors Service has lowered the senior debt ratings of ABB Ltd. (ABB) and its guaranteed financial subsidiaries to A3 from A2 and the company’s ratings for short-term debt to Prime-2 from Prime-1.
The rating downgrade reflects the company’s reduced financial flexibility within the current environment as well as its need to strengthen its credit facilities in terms of amount and quality, and its dependency on significant financial asset disposals to restore its balance sheet structure.
Moody’s current rating action does assume the continued support of ABB’s banking group and the timely completion of major asset sales by the end of the third quarter of 2002. Moody’s negative rating outlook reflects the execution risk associated with management’s near term refinancing plans and the medium-term exposure to rising asbestos claim settlements.
In its analysis of ABB’s near term liquidity needs, Moody’s concluded that the company’s current balances of freely available cash and marketable securities and its bank lines, including uncommitted and conditional facilities, should be sufficient to meet its financial obligations at least until the projected proceeds from asset sales have come in to restore the company’s financial profile.
This could be achieved even without further access to the currently tight commercial paper market. In this context, Moody’s viewed the $3 billion 364-day revolving credit agreement with a $1.0 billion one-year term-out option which is subject to a rating covenant triggered if ABB’s credit rating falls below A3, as a weaker form of liquidity insurance. In addition to that, Moody’s noted that management is committed to strengthen its credit lines in terms of amount and quality, to extend the group’s maturity profile and achieve a more balanced funding mix.
Until the disposal proceeds are received, ABB will have to rely largely on the strength of its banking relationships to fund from uncommitted or conditional credit lines or provide new credit lines for any liquidity gaps versus its cash balances. This dependence on confidence sensitive funding sources and proceeds from asset disposals in a challenging market environment has led to the ratings downgrade.
Moody’s A3 and Prime-2 ratings reflect also the expected free cash flow generation for fiscal year 2002 resulting from tight working capital management, reduced capital expenditures and an improving profitability, the continued support by ABB’s core banking group, and the timely completion of major asset sales.
However, a substantial shortfall in shoring up liquidity insurance and reducing leverage would create further rating pressure.
Ratings downgraded are: ABB Ltd. – Issuer Rating to A3 from A2 ABB Holdings, Inc. – Bkd Issuer Rating to A3 from A2 ABB International Finance Limited – Bkd Senior Unsecured to A3 from A2 ABB Asea Brown Boveri Ltd. – Issuer Rating and Senior Unsecured to A3 from A2 ABB Finance Inc. – Bkd Senior Unsecured to A3 from A2 ABB Capital B.V. – Bkd Senior Unsecured to A3 from A2 ABB Financial Services Australia Ltd. – Bkd Senior Unsecured to A3 from A2 Short-term Ratings lowered are: ABB Ltd. – Short-term Issuer Rating to Prime-2 from Prime-1 ABB Treasury Center (USA) Inc. – Bkd Commercial Paper to Prime-2 from Prime-1 ABB Capital B.V. – Bkd Commercial Paper to Prime-2 from Prime-1 ABB Financial Services Australia Ltd. – Bkd Short-term Debt to Prime-2 from Prime-1
ABB Ltd., headquartered in Zurich, Switzerland, is a global engineering group with positions in power and automation technology products serving the manufacturing, process and consumer industries, utilities, and the oil and gas market. In fiscal 2001 the group generated total revenues of almost US$24 billion.