Fitch Ratings Expects to Assign 'A+' to Honeywell's Planned Debt Issuance

Business Wire, Feb 26, 2008

CHICAGO -- Fitch Ratings expects to assign an 'A ' rating to Honeywell International Inc.'s (HON) planned issuance of senior unsecured debt. The new debt is expected to include a mix of five-year notes and 10-year bonds. Proceeds from the new debt will be used to refinance a portion of HON's nearly $1.8 billion of commercial paper that was outstanding at the end of 2007.

HON's current long-term debt and commercial paper ratings are 'A /F1', respectively. There was approximately $7.7 billion of debt as of Dec. 31, 2007. The Rating Outlook is Stable.

HON's financial profile remains relatively weak for the rating category following a high level of discretionary spending for share repurchases and acquisitions in 2007. HON spent $3.4 billion for net share repurchases during the year and over $1.1 billion for acquisitions. As a result, debt and leverage were higher than originally anticipated by Fitch. However, debt/EBITDA of slightly less than 1.6 times (x) at Dec. 31, 2007 had declined slightly since the middle of the year as the impact of higher debt levels was partly offset by HON's improved operating performance. Going forward, Fitch anticipates that share repurchases will be used primarily to offset dilution from the exercise of stock options and that HON will reduce debt modestly. When combined with expectations for continued favorable financial results, leverage measures should decline toward more appropriate levels for the ratings by the end of 2008.

Primary rating concerns include the possibility of higher than anticipated discretionary spending, especially for acquisitions, and the risk of economic weakness that could potentially reduce HON's financial capacity. To date, there has been little evidence of weaker demand in HON's end-markets, but in the event that results are weaker than expected, or if HON is unable to adjust quickly to changing conditions, Fitch could consider reviewing the ratings and outlook for a potential downgrade. Other rating concerns include event risk in HON's aerospace segment and ongoing cash payments required for asbestos liabilities and environmental remediation. These concerns are mitigated by HON's geographic and product diversification, an attractive portfolio of businesses and HON's long-term efforts targeted at operating improvements and cost controls.

As of Dec. 31, 2007 HON's liquidity included $1.8 billion of cash and availability under a $2.8 billion bank credit facility maturing in 2012, offset by $1.8 billion of commercial paper and over $400 million of current maturities of long-term debt. Although the new debt issuance will improve HON's liquidity, the company will have less flexibility to reduce debt in the near term.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.