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Vontier Corporation -- Moody's assigns Ba1 senior unsecured and CFR to Vontier Corporation; outlook stable

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Rating Action: Moody's assigns Ba1 senior unsecured and CFR to Vontier Corporation; outlook stableGlobal Credit Research - 26 Feb 2021New York, February 26, 2021 -- Moody's Investors Service (Moody's) assigned ratings to the Vontier Corporation ("Vontier) including a Ba1 corporate family rating (CFR), a Ba1 senior unsecured rating and a Ba1-PD probability of default rating. The speculative grade rating is SGL-1. The rating outlook is stable.The rating assignment takes into account the expectation that Vontier will refinance some or all of the short-term debt, without any material change in the financial leverage. Governance was a driver in this rating action as Moody's expects the company to maintain good corporate governance and reasonable level of conservatism in its financial strategies.Assignments:..Issuer: Vontier Corporation.... Corporate Family Rating, Assigned Ba1.... Probability of Default Rating, Assigned Ba1-PD.... Speculative Grade Liquidity Rating, Assigned SGL-1....Senior Unsecured Regular Bond/Debenture, Assigned Ba1 (LGD4)Outlook, StableRATINGS RATIONALEVontier's ratings reflect its well-established position in its core markets with recognized brands such as Gilbraco Veeder-Root (GVR) and Matco Tools (Matco), and a successful track record of sustained organic revenue growth. The ratings are, however, constrained by the company's meaningful concentration in retail refueling markets, operated through GVR, and expected revenue volatility as the business transitions from the current boost Vontier recognizes from Europay, MasterCard and Visa (EMV) related growth.Moody's believes that the company will pursue acquisitions to continue the growth trajectory expected from a public company and considers the ensuing susceptibility in its credit metrics. Further there is still to be determined financial policies around dividend payout and deployment of excess free cash flow.Nevertheless, the ratings benefit from the company's strong profitability margins that translate to robust annual free cash flow. Moody's forecasts Vontier's debt-to-EBITDA (after Moody's standard adjustments) to be 3.2x in 2021 with over $300 million in annual free cash flow. Moody's expects demand across end-markets to improve but is offset by somewhat lower demand in GVR as EMV sales peaks, resulting in slightly down to flat revenue. Moody's does not expect material debt reduction over the next few years as the company deploys capital towards acquisitive growth and shareholder returns, with debt-to-EBITDA coming down only gradually from 2021 levels with EBITDA expansion.The stable outlook reflects Moody's expectation that Vontier will largely preserve its profitability and credit metrics despite the expected volatility from reduced EMV sales and prospective acquisitions. The outlook also reflects Moody's expectation of good liquidity that will allow Vontier to maintain its balance sheet strength.Vontier's SGL-1 liquidity rating reflects its good liquidity supported by its positive free cash, expected cash balance of over $500 million at closing and full availability under its $750 million revolving credit facility.Environmental considerations reflect on the important nature of Vontier's product, particularly in GVR business, that helps customers comply with regulations governing environmental, safety, security and payment regulation and market standardizations such as EMV. This, in turn, also requires the company to continuously invest and develop new products that comply with changing regulations which from time-to-time may build large capital needs.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if the company's scale expands along with sufficient diversification in revenue streams to improve the predictability of cash flows. An expectation and financial policy that supports adjusted debt-to-EBITDA to be maintained below 3.0x, while maintaining high margins would support an upgrade. A well-formulated financial policy that aligns with investment grade profile would also be a consideration.Ratings could be downgraded if the company's profitability declines or if GVR's growth is weaker than expected, or if debt-to-EBITDA (after Moody's adjustments) is expected to be above 4.0x. Also, large acquisition that requires significant debt financing could exert downgrade pressure.Vontier Corporation is an industrial-focused company that focuses on transportation and mobility technologies. The company provides a wide-range of industrial applications in fueling systems, point-of-sale and payment systems, vehicle fleet tracking management solutions and franchised professional tools and wheel-service equipment distributors. Revenues for the latest twelve months ended December 2020 were nearly $2.7 billion.The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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.At least one ESG consideration was material to the credit rating action(s) announced and described above.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. Shirley Singh Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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