Moody’s drops Pentair, rates notes Baa3

Moody's Investors Service said it downgraded the senior unsecured rating of Pentair Finance SA, the financing subsidiary of Pentair plc, to Baa3 from Baa2, and the short-term rating to P-3 from P-2.

In addition, the agency assigned Baa3 ratings to Pentair's proposed senior unsecured notes, which will be a combination of U.S. and euro notes expected to total about $2.1 billion.

The outlook is stable.

This concludes the review for downgrade that was initiated on Aug. 17 following the company's announcement to acquire Erico Global Co.

Proceeds from the new notes will be used to fund the $1.8 billion purchase of privately held Erico with the remainder used to term-out a portion of currently outstanding commercial paper.

Moody’s said the downgrade to Baa3 was prompted by nearly $2 billion in incremental debt – an increase of roughly 55% – to fund the Erico acquisition, pushing leverage to a level that is weak even for Baa3-rated companies, just as Pentair is facing serious challenges in its energy-related end markets and weakening prospects for cash flow generation.

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