S&P Global Ratings placed DuPont de Nemours Inc.'s A- issuer credit rating on CreditWatch Negative after the company agreed to merge its nutrition and biosciences business with International Flavors & Fragrances Inc. by way of a "reverse Morris trust transaction."
DuPont expects to earn a one-time cash payment of about $7.3 billion and pay off its debts of approximately $5 billion. According to S&P Global Ratings' assessment, the company's business could be weaker following the completion of the transaction, which is subject to regulatory approvals. The use of the reverse Morris trust can allow a company to transfer a subsidiary tax-free.
The rating agency believes the loss of the nutrition and biosciences unit could diminish the size, scale and diversity of the company, as the segment contributes to 30% of its revenue.
S&P Global Ratings expects the company's funds from operations-to-debt ratio to range from 30% to 45%, or slightly lower considering weakness in the automotive business segment, supply chain disruptions and the looming macroeconomic slowdown.
The rating agency plans to monitor the company's status until the full-year 2019 financials are available.
S&P Global Ratings said it could lower the company's ratings based on the potential weakness after the transaction or if the FFO-to-debt ratio falls below their expectations.
The agency affirmed the company's short-term rating at A-2.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.