Fitch Chgs Textron's & Textron Financial's Rtg Outlook To Neg

    NEW YORK--Oct. 23, 2001--Fitch changes Textron Corp.'s and its wholly owned finance subsidiary, Textron Financial Corp.'s (TFC) Rating Outlook to Negative from Stable.
    Each company's `A' senior unsecured debt and `F1' commercial paper ratings were affirmed. Approximately $7 billion of debt is covered by Fitch's actions.
    The debt ratings reflect Textron's diverse portfolio with market-leading positions and significant breadth in product offering in aircraft, automotive, fastening systems, industrial products and commercial finance. The rating also considers management's commitment to improve credit quality and financial flexibility by reducing fixed costs and pruning non-core businesses in order to reduce debt. Concerns are centered upon the challenging economic environment, growing leverage, high fixed-cost base and declining cash flow visibility.
    The Rating Outlook Negative reflects continued ratings pressure resulting from a slowing economy and the impact of last month's events on TXT's core business segments. Consequently, the company's internal cash flow generating ability has weakened and Fitch expects this trend to continue during the near term. Future success with divesting non-core businesses and using net proceeds to reduce debt in order to mitigate the effects of lower profits and cash flow on TXT's leverage profile could better position the company within the rating category.
    Due to the existence of a support agreement between TXT and TFC, the ratings are linked. The support agreement requires that TXT maintain TFC's net worth and fixed charge coverage at $200 million and 1.25 times (x) or higher at all times. Through the first half of 2001, TFC has successfully navigated through a difficult operating environment in commercial finance and reported good earnings while maintaining acceptable asset quality. While profitability has trended downward and net chargeoffs and leverage have trended upward in 2001, TFC is not a negative to TXT's ratings at present.
    Following the tragic events of Sept. 11, 2001, TXT lowered guidance for the third and fourth quarters of 2001 as cash flow will be pinned down by a weaker economy coupled with softer market conditions for most of the cyclical business sectors in which TXT competes. TXT lowered earnings per share further due to overall lower demand levels across all business segments and limited forward visibility during the near term. Furthermore, management has indicated that the pending sale of TXT's Automotive Trim business to Collins & Aikman (CKC) for approximately $800 million in net cash proceeds could be delayed as a result of the slump in the high yield debt markets since CKC will be funding most of the purchase with high yield debt.
    Textron Manufacturing's debt to total capital ratio rose to 39.1% at June 20, 2001, up from 34.3% at year-end. The increase in leverage is the result of financing recent acquisitions and share repurchases combined with lower operating profits. During the next few quarters Fitch expects TXT's leverage to steepen further as cash flow visibility declines and debt levels moderate, resulting in lower debt coverage by cash flow from operations. In addition, Fitch expects TXT's capitalization ratio to rise above the company's low to mid-30% target. At June 30, 2001, Textron Manufacturing had approximately $557 million available under its $1.4 billion in committed lines of credit. Debt maturities during 2002 include $500 million in senior notes.
    Textron Inc., headquartered in Providence, R.I., was founded in 1923 and is a multi-industry manufacturing company, focused on aircraft, automotive and industrial markets. In addition, commercial finance operations are conducted by Textron Financial Corp. (TFC), a commercial finance business that also provides financing for Textron-manufactured products. The manufacturing businesses are separately incorporated and constitute a distinct borrowing group from the finance business. Through the last 12-month period ended June 30, 2001, sales were $12.8 billion and by segment were: Aircraft, 36%; Automotive, 21%; Fastening Systems, 15%; Industrial Products, 22% and Finance, 6%.