Ecolab Inc. (ECL) has announced the pricing of its underwritten public offering of senior notes worth $600 million. The offering, subject to customary closing conditions, is expected to close on Jan 15, 2015.
Ecolab’s senior unsecured notes include $300 million worth of notes slated to mature in 2018, bearing an annual interest rate of 1.550% while another $300 million worth of notes are scheduled to mature in 2020, bearing an annual interest rate of 2.250%.
Ecolab intends to use the net proceeds from the offerings to partly repay outstanding commercial paper balances and for general corporate purposes. We note that the company’s commercial paper balance stood at $630 million as of Sep 30, 2014. Additionally, Ecolab has $250 million of notes maturing in Feb 2015 and another $500 million in Aug 2015.
Ecolab’s proposed 3-year and 5-year senior unsecured notes have been assigned a BBB+ rating by Standard & Poor’s Rating Services. Moody's Investors Service – the credit rating agency of Moody’s Corporation (MCO) – has assigned Baa1 ratings to the notes. At the same time, Moody’s has upgraded its outlook on Ecolab to stable from negative.
Per Moody’s, the rating upgrade reflects the deleveraging that has occurred at the company following the acquisition of Champion Technologies in Apr 2013 and Nalco Holding Company in Dec 2011. Markedly, Ecolab’s total debt had shot up to $7.64 billion in 2011 from just $845.6 million at the end of 2010 owing to the Nalco buyout. As of Dec 31, 2013, the debt balance stood lower at $6.9 billion which has further reduced to $6.8 billion as of Sep 30, 2014.
We consider that Ecolab’s liquidity profile is adequately supported by significant cash flow from operations ($1.1 billion in the first nine months of 2014) and cash balances. With the latest debt issuance, we believe that the company is addressing its upcoming debt maturities, thus improving its liquidity profile.
However, Ecolab has significant exposure to the oil and gas markets. Lower crude oil prices may result in lower demand for Ecolab products that are used in drilling activities. We feel that the current decline in oil prices could be a possible strain on projected growth.
Consequently, Ecolab has been witnessing a negative trend in earnings estimate revision over the past one week. One estimate moved down over the past 7 days for 2015, with no upward revision during the same time frame. As a result, the Zacks Consensus Estimate declined 0.4% to its current level of $4.77 for 2015.
Currently, Ecolab carries a Zacks Rank #4 (Sell).
Mineral Technologies (MTX) and NL Industries (NL) are better-ranked stocks in the specialty chemicals industry, both sporting a Zacks Rank #1 (Strong Buy).
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