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Edgewell Personal Care Co. -- Moody's assigns Ba3 rating to Edgewell's proposed notes, upgrades liquidity rating to SGL-1; outlook stable

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Rating Action: Moody's assigns Ba3 rating to Edgewell's proposed notes, upgrades liquidity rating to SGL-1; outlook stableGlobal Credit Research - 25 Feb 2021New York, February 25, 2021 -- Moody's Investors Service ("Moody's") today assigned a Ba3 rating to Edgewell Personal Care Co.'s ("Edgewell") new $500 million senior unsecured 8-year notes due 2029. At the same time Moody's affirmed Edgewell's Ba3 Corporate Family Rating, its Ba3-PD Probability of Default Rating and its existing Ba3 unsecured debt rating. Moody's upgraded the company's Speculative Grade Liquidity Rating to SGL-1 from SGL-3. Proceeds from the new offering will be used to refinance the existing $500 million Senior Notes due May 2022. The Ba3 rating on the 2022 notes is not affected and will be withdrawn once the bonds are redeemed. The offering is credit positive because it extends the maturity profile, reduces cash interest expense, while financial leverage is unaffected. There are no near term debt maturities. The rating outlook is stable.The Speculative Grade Liquidity Rating upgrade to SGL-1 reflects Moody's expectation that Edgewell will maintain very good liquidity over the next 12 months following the refinancing of the approaching 2022 note maturity. Liquidity is supported by the company's cash balance of $280.8 million at December 31, 2020, Moody's expectation of good free cash flow of about $150 million per annum, full availability under the company's $425 million revolving credit facility expiring in 2025, and good room under financial covenants.The affirmation of the ratings reflects Moody's belief that relatively high financial leverage will continue to improve over the next 12 months. Leverage is somewhat elevated at 4.5x debt-to-EBITDA for the twelve months ended December 31, 2020. Higher than expected leverage reflects declining sales in certain categories related to wet shave and sun care due to reduced consumption. Reduced consumption is due to headwinds related to the coronavirus. Moody's believes that the global wet-shave category will continue to face challenges reflecting declining trends in men's shaving, as well as intense competitive pressures from Edgewell's large and diversified peers. The entry of new startup brands will also heighten competition in the segment amid flat to declining global sales. That said, Moody's estimates that debt to EBITDA will approach 4.0x over the next 12 months as the effects of the coronavirus subsides and as the sizable cash and free cash flow is deployed for acquisitions that will increase earnings. Edgewell's sizable free cash flow-to-debt of about 10% provides flexibility to invest in products with better growth prospects.Ratings Upgraded:..Issuer: Edgewell Personal Care Co..... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-3New Assignments:..Issuer: Edgewell Personal Care Co.....Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD4)Ratings Affirmed:..Issuer: Edgewell Personal Care Co..... LT Corporate Family Rating, Affirmed Ba3.... Probability of Default Rating, Affirmed Ba3-PD.... Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD4)Outlook Actions:..Issuer: Edgewell Personal Care Co.....Outlook, Remains StableRATINGS RATIONALEEdgewell's Ba3 CFR reflects the company's challenging industry operating environment. Edgewell will continue to face intense competition from much larger, well diversified competitors in its wet shave, skin care and feminine care businesses. This will lead to weak earnings growth and debt to EBITDA sustained around 3.7-4.0x over the next 12 months. The rating also reflects the company's concentration in mature, highly-promotional categories that present a strategic growth challenge. Moody's believes that the company will continue to utilize cash and debt to fund acquisitions to spur growth and share buy backs. Moody's expects Edgewell's financial strategy to maintain debt-to-EBITDA leverage within a 3.0-3.5x range (based on the company's calculation) will help sustain solid free cash flow. The rating is supported by the company's portfolio of well-known consumer product brands including Schick, Playtex, and Banana Boat. The company also generates good free cash flow.In terms of Environmental, Social and Governance (ESG) considerations, the most important factor for Edgewell's ratings are governance considerations related to its financial policies and environmental risk. Moody's views Edgewell's financial policies as balanced given its appetite for debt financed acquisitions is partially mitigated by a moderate leverage target. Edgewell faces environmental risk from the disposal and recycling of razors, as well as the resin and packaging related to its wet shave products. Social factors relating to shifts in consumer preferences toward greater comfort with facial hair is negatively affecting demand for shaving products.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of consumer sectors from the current weak U.S. economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Edgewell reported relatively flat organic sales in the first quarter ended December 31, 2020 with continued strong growth in wipes reflecting consumer focus on hygiene because of the coronavirus. Moody's expects demand for products such as wet shave and sun care to improve gradually over the next 12 months as the pandemic recedes. However, Moody's anticipates any revenue pressure will be modest and that free cash flow will remain positive including the dividend.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's expectation that Edgewell will continue to generate flat to negative organic growth in its wet shave category. The stable outlook also reflects the rating agency's expectation that earnings growth and cash utilized for acquisitions will reduce debt-to-EBITDA to 4.0x or lower over the next year, and that Edgewell will continue to generate solid free cash flow and maintain very good liquidity.A downgrade could occur if Edgewell fails to stabilize operating performance, or if liquidity deteriorates. Moody's could also downgrade the company if debt to EBITDA is sustained above 4.0x. Other factors that could contribute to a downgrade include debt financed acquisitions or share repurchases.Edgewell's ratings could be upgraded if the company improves its scale and diversification, and it sustains solid organic revenue growth with a stable to higher EBITDA margin. An upgrade would also require improved credit metrics such that Moody's expects debt/EBITDA to be sustained below 3.0x.The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Edgewell Personal Care Co., based in Shelton, CT manufactures, markets and distributes branded personal care products in the wet shave, skin and sun care, feminine care, and infant care categories. The company has a portfolio of over 25 brands and a global footprint in over 50 countries. Edgewell is publicly traded and generates annual revenue of about $1.9 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Chedly Louis VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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