Fitch Ratings has downgraded Whirlpool Corporation’s Long-Term Issuer Default Rating to BB+ from BBB-, citing elevated leverage and a sluggish recovery in consumer demand for home appliance products. Last week, the rating agency also revised its outlook for the company to Negative, indicating the possibility of further downgrades if financial conditions deteriorate.
According to Fidelity Investments, bonds with a rating of BBB- or better are considered “investment-grade.” Bonds at Whirlpool Corp.’s new level of BB+ are considered “speculative” and often referred to as high-yield or junk bonds.
The downgrade essentially means Whirlpool Corporation will be faced with the likelihood of paying higher interest rates to borrow money because there is a higher risk (real or perceived) that the issuer will default on its debt.
In their statement, Fitch Ratings pointed to the company’s elevated leverage and ongoing housing sector issues as the reasons for their downgrade of Whirlpool Corporation’s bond rating.
“The downgrade reflects Whirlpool’s high leverage, projected to remain elevated through at least 2027. Although margins have improved, expansion is expected to be slower than anticipated due to tariff impacts and weaker economic and housing conditions.” — Fitch Ratings
The downgrade statement went on to say, “…the Negative Outlook reflects risks to Whirlpool’s deleveraging trajectory, including ongoing execution of its pricing strategy in a weak demand environment and anticipated debt reduction, expected to be funded by selling a partial ownership stake in Whirlpool of India.”
The full statement from Fitch Ratings can be found here.
According to Bankrate.com, “…despite the name, junk bonds may be issued by companies that are in reasonably good financial shape, though they’re often issued by those in mediocre or poor shape. The worst junk bonds are issued by companies that are struggling financially and have a high risk of defaulting or missing their interest payments.”
Moody on the Market has reached out to Whirlpool Corporation for reaction to the Fitch Ratings downgrade, but a spokesman said the company would not comment.
The news doesn’t appear to have had too much of an impact on the company’s trading price. The stock closed at $80.03 per share on Friday, four dollars better than earlier in the week. Year to date, Whirlpool Corporation’s stock is down more than 30 percent.
