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DCR Reaffirms ITT Industries' 'A-' Debt Rating

22 July 1997

DCR Reaffirms ITT Industries' 'A-' Debt Rating

    CHICAGO, July 22 -- Duff & Phelps Credit Rating Co. (DCR) has
reaffirmed the senior unsecured debt rating of ITT Industries, Inc.
(Industries)  at "A-" (Single-A-Minus) and removed the rating from Rating
Watch-Down, on which it had been placed in April after Industries announced it
would acquire Goulds Pumps, Inc. for $815 million in cash and $119 million in
assumed debt.  Also, DCR reaffirmed Industries' commercial paper rating of
"D-2" (D-Two).
    Industries had total debt of approximately $2.3 billion outstanding on
June 30, 1997. Although the debt-financed Goulds Pumps acquisition has
significantly increased Industries' financial leverage, with the ratio of
balance sheet debt-to-EBITDA jumping from 1.4 times to more than 2.0 times pro
forma, Industries is expected to bring debt levels back down to levels more
appropriate for the rating within two years.  Industries is divesting a number
of non-core assets, and the proceeds will supplement free cash flow generated
by operations in paying down debt.  Barring any major downturn in auto
production in North America or Europe, Industries is likely to reduce its
debt-to-EBITDA ratio to roughly 1.5 times over the next two years.
    Favorably, the acquisition will make Industries the world's largest player
in fluid technology products, with more than $2 billion pro forma in annual
sales.  Goulds Pumps should fit well strategically, with both products and
geographical or end-user distribution channels that highly complement
Industries' current fluid technology business.  Also, the acquisition
increases the size of fluid technology, which is Industries' highest-margin
segment, from less than 16 percent to 23 percent of Industries' total pro
forma sales, and this will increasingly buffer the potentially cyclical
results from automotive products, which will continue to be Industries`
largest business segment with 55 percent of total pro forma sales.
    The reaffirmation also considers Industries` recently articulated desire
to grow its ITT Cannon connectors business, including potentially looking for
external growth.  The rating specifically anticipates that first, any
potential acquisition will likely be a relatively small acquisition of product
technology or a specific distribution channel, and second, that any major
acquisition undertaken in the near future will be funded by non-debt sources
such as further asset divestitures.

SOURCE  Duff & Phelps Credit Rating Co.