Moody's affirms Illinois Tool

Moody's Investors Service said it affirmed Illinois Tool Works, Inc.'s Aa3 senior unsecured ratings and P-1 short term rating.

The outlook is negative.

The outlook follows the company's announcement of its planned acquisition of Enodis plc (not rated) for $2.3 billion, which is believed to be entirely debt-financed.

"The negative outlook reflects Moody's view that the combination of continuing weak demand from North American markets, the relatively weaker margins of recently acquired businesses and significant pressure on costs of raw materials could prolong the period required for [the company] to restore credit metrics to pre-acquisition levels," Jonathan Root, Moody's analyst, said in a written statement.

That's "notwithstanding the significant financial flexibility [the company] garners from its capacity to generate free cash flow," the analyst said.

Ratings reflect the company's diversified product portfolio and geographical mix, strong and consistent profit and cash flow generation and historically conservative capital structure, the agency said.

The outlook could be stabilized if the company maintains a debt-to-EBITDA ratio below 1.5 times.

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