Whirlpool’s credit rating downgraded by Fitch due to high leverage

Investing.com -- Fitch Ratings has downgraded Whirlpool Corporation (NYSE:WHR)’s credit ratings, including its Long-Term Issuer Default Rating (IDR) to ’BB+’ from ’BBB-’, citing high leverage and a negative outlook. The downgrade also covers Whirlpool’s unsecured ratings, Short-Term IDR, and commercial paper ratings. Whirlpool Finance Luxembourg S.a.r.l. and Whirlpool EMEA Finance S.a.r.l.’s unsecured note ratings have also been downgraded.

The downgrade reflects the high leverage of Whirlpool, which is projected to remain elevated through at least 2027. Although the company has seen improved margins, the expansion is expected to be slower than anticipated due to tariff impacts and weaker economic and housing conditions.

The negative outlook reflects risks to Whirlpool’s deleveraging trajectory, including the ongoing execution of its pricing strategy in a weak demand environment. The company is expected to fund its anticipated debt reduction by selling a partial ownership stake in Whirlpool of India (NSE:WHIR).

Fitch expects Whirlpool’s deleveraging to take longer than anticipated, making it challenging to achieve investment grade credit metrics in the next two years due to the weak demand environment. The ratings agency projects EBITDA leverage will settle between 4.5x-5.0x at the end of 2025, assuming $700 million in debt repayment, funded by proceeds from selling a portion of its stake in Whirlpool of India Ltd.

Whirlpool’s margin recovery is expected to be hampered by the negative impact of tariffs and a weaker demand environment. The company’s EBITDA margin improved 190 bps during 1Q25, but Fitch expects margin improvement will be slower during the remainder of 2025.

Despite the challenges, Whirlpool has adequate financial flexibility to navigate the subdued operating environment. It has meaningful debt maturing in 2025, including $350 million of senior notes that matured in May 2025 and a $1.5 billion term loan coming due in October 2025. Fitch expects the company will refinance part of these debt maturities in the next two quarters.

Whirlpool completed the sales of its EMEA business in 2024 and has reduced its stake in Whirlpool of India. It is expected to sell additional stake in 2025, retaining a minority interest. Fitch does not view these divestitures as significantly weakening the business profile. Whirlpool retains strong market positions in its various local markets and geographic diversity beyond North America.

Whirlpool’s credit metrics are weaker than most investment grade building products issuers due to higher debt levels from an acquisition completed at the end of 2022, combined with lower margins. Fitch expects Whirlpool’s EBITDA leverage to be sustained longer term at levels comparable with ’BBB’ rated peers such as Masco Corporation (NYSE:MAS) and Fortune Brands (NYSE:FBIN) Innovations, Inc.

The company has exposure to risks associated with ongoing litigation and tax matters, including a case filed in the U.K. relating to the Grenfell Tower fire and an investigation by the French Competition Authority. Unfavorable rulings or settlements in these cases could result in a material use of cash for Whirlpool and constrain discretionary cash flow or negatively affect credit metrics.

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