Morningstar Slashes Dupont's (DD) Credit Rating

Citing weak credit metrics from Dupont (NYSE:DD), Morningstar cut their credit rating on the company from A- to BBB+.

Morningstar said the closing of the $6.3 billion deal with Danisco in the second half, which was funded with new debt and cash, was the major impetus behind the decision.

"DuPont's elevated level of total indebtedness and large pension deficit--two areas where we had expected to see more progress at this point in the economic recovery--also lead us to believe a BBB+ rating represents a more appropriate assessment of underlying credit quality.

"We acknowledge DuPont's 2010 operating results represented a significant improvement over the prior year. A 21% revenue rebound combined with an over 350 basis-point improvement in EBITDA margin increased absolute EBITDA by 75% over 2009, and cut the year-end gross debt leverage from 3.8 times to 2.2 times. However, after adjusting for the pension deficit ($5.5 billion as of year-end 2010, not materially changed from prior years) and the Danisco acquisition, we expect to see a total adjusted gross leverage of over 5 times in 2011 (granted, only half of Danisco’s earnings contribution is included in the pro forma statement for 2011). In 2012, we expect leverage to decline to 4.7 times with full-year Danisco earnings.

"While we expect DuPont's credit metrics to gradually improve in the next few years, significant capital expenditures and shareholder distributions mean it would take significant time and management commitment for DuPont to reduce leverage to levels commensurate with our prior A- rating. We estimate the company will generate $4.5 billion-$5 billion in cash from operations annually in the next two years, which largely would be consumed by $2 billion in annual capital expenditures plus $1.5 billion-$2 billion annual dividends, leaving little room for voluntary debt reduction and/or large pension contributions in the near term."

DuPont closed in New York at $53.06, dropping $0.16, or 0.30.

Danaher (NYSE:DHR) Credit Rating Under Review by S&P Ratings Service

Danaher's (NYSE:DHR) decision to acquire Beckman Coulter (NYSE:BEC) has had some immediate negative ramifications, as Standard & Poor's Ratings Services announced they've placed the company's rating on CreditWatch.

Standard & Poor's credit analyst Gregoire Buet said, "We expect that this acquisition will increase Danaher's financial leverage to levels that are somewhat higher than what Standard & Poor's considers commensurate with the 'A+' rating."

The negative CreditWatch could end with the company being downgraded by one notch, said S&P.

"We could also affirm the rating after our review of the transaction and of management's long-term strategic and financial objectives. In reviewing Danaher's credit rating, Standard & Poor's will consider the potential integration risk related to the Beckman Coulter acquisition, Danaher's future growth objectives and portfolio balance, as well as its anticipated use of debt for financing future acquisitions," added the ratings agency.

Danaher currently has a "A+" corporate rating on them from S&P. The "A+" rated senior unsecured debt of the company was also placed on CreditWatch negative.

S&P said they're affirming the short-term and commercial paper ratings on the company of "A-1."

Beckman Coulter closed at $82.65, gaining $7.48, or 9.95 percent. Danaher closed at $49.03, up $1.05, or 2.19 percent.

Ford's (NYSE:F) Credit Rating Boosted by Standard & Poor's

Standard & Poor's Ratings Services raised their credit rating on Ford Motors (NYSE:F) from a "B+" to "BB-", citing full-year net income and earnings strength in the fourth quarter.

Standard & Poor's credit analyst Robert Schulz said, "The upgrade reflects our reassessment of Ford's business risk profile to fair from weak."

The credit agency also said, "if the global economic recovery, U.S. labor negotiations, and Ford's own performance develop favorably during the next 12 months," they will retain their positive outlook on the company, which could result in further upgrades.

"We could consider raising the rating if we believed its global cash generation from automotive operations during the next year exceeded $4 billion," added Schulz.

Risks include failure to expand its market share in China, rising commodity costs, and too much reliance on their light trucks.

Any slowing in demand would result in Ford being lowered to stable, as it would result in margins being pressured and too much inventory. Overproduction would also be a problem if demand estimates aren't in line with reality.

Ford closed Tuesday at $15.89, losing $0.06, or 0.38 percent.

Freeport-McMoRan (NYSE:FCX) Issued "BBB" Rating by Morningstar

Freeport-McMoRan (NYSE:FCX) is now being covered by Morningstar, and their first credit rating for the company was a "BBB."

Morningstar said, "After retiring a sizable chunk of debt in 2009 and early 2010, Freeport reported pro forma total debt of $5.1 billion at April 1. With a significant cash hoard, only modest maturities over the next five years, and preferred dividend requirements ending with the mandatory conversion of $2.875 billion in convertible preferred stock in May, Freeport has a solid liquidity profile."

The credit rating would have been higher if not for asset risks associated high-risk countries, said Morningstar. They were referring to the Freeport Grasberg mining gem in Papua, with risks of social unrest and the government seeking higher rents.

Freeport has also invested billions in the Tenke project in Congo, where risk is even higher in regard to either a incremental expropriation, or possibly even an outright one.

In other words, the risks are outside of operational control, and while the rewards are potentially high, so are the potential losses.