S&P rates Philips Domestic B+

S&P said it assigned Philips Domestic Appliances (Nobel Bidco BV) a preliminary B+ issuer rating with a stable outlook.

Koninklijke Philips NV agreed to sell its domestic appliances business, Philips Domestic Appliances to Hillhouse Capital for €4.4 billion including a brand licensing agreement for 15 years. Nobel will acquire Philips Domestic.

As part of the deal, Philips Domestic will issue €1.7 billion of new debt in an €850 million term loan and €850 million of additional senior secured debt, a €250 million senior secured revolver and €2.3 billion of equity in common and preference shares. S&P assigned the debt preliminary B+ and 3 recovery ratings.

“Philips DA has a track record of organic growth, with resilient profitability, but the company's strategy will weigh on margins over the next two years. During 2009-2019, Philips DA's revenue achieved a 4%-6% sales growth. However, the company experienced a 4%-6%nominal sales decline in 2020, due to Covid-19, underperformance, and repositioning of the China business. The company posted a solid 15.5% S&P Global Ratings-adjusted EBITDA margin,” S&P said in a press release.

“We understand that Philips DA has put an ambitious new strategy in place to achieve profitable growth in the future, in which it will invest more in advertisement and promotion in 2021-2022, which will result in depressed profitability in the next two years,” the agency said.

The outlook reflects a forecast that Philips DA's that the company’s S&P Global Ratings-adjusted EBITDA margin remains above 10% and that adjusted debt to EBITDA is at 5x-6.5x in the next 12-18 months, S&P said.

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