Investing.com -- Moody’s (NYSE:MCO) Ratings has confirmed that the ratings of The Sherwin-Williams Company (NYSE:SHW) remain unaffected by the firm’s recent acquisition of BASF’s Brazilian architectural paint business. The $1.15 billion all-cash transaction for the business, known as "Sunivil", was announced on February 17, 2025.
The acquisition is not expected to have a lasting impact on Sherwin-Williams’ credit profile. The company anticipates generating between $1.5 and $2 billion of free cash annually over the next two years. To reduce the debt needed to complete the acquisition, Sherwin-Williams plans to slow down its share repurchases in 2025.
Despite a possible temporary increase in metrics for a quarter or two after the transaction closes, the company should be able to maintain the dividend, buy back some shares, close the acquisition, and return Moody’s Adjusted Debt/EBITDA to under 2.5x quickly.
Sherwin-Williams’ credit profile reflects the company’s strong business model, robust margins, and continuous growth, enhanced by bolt-on acquisitions. The firm operates in three segments: Paint Stores, Consumer Brands, and Performance coatings. The Paint Stores segment, which focuses on servicing professional contractors, generates more than half of the revenues and typically 80% - 90% of EBITDA.
Sherwin-Williams’ Prime-2 rating for commercial paper is indicative of its good liquidity, despite an elevated level of long-term debt maturities, a moderate amount of short-term debt, and a transaction that is at the larger end of the bolt-on range. The company plans to raise additional debt in 2025 due to approximately $1.4 billion of long-term debt maturities through January 2026.
However, Sherwin-Williams has ample liquidity due to an expected $1.5 billion of free cash flow generation in 2025 and roughly $3.0 billion of availability under $4.0 billion in committed revolving credit facilities net of commercial paper borrowings. Sherwin-Williams’ credit facilities have a consolidated leverage covenant, which limits leverage to 3.75x. The company can temporarily increase its maximum leverage ratio to 4.25x for a period of four consecutive fiscal quarters following the consummation of a qualifying acquisition.
Sherwin-Williams, headquartered in Cleveland, Ohio, manufactures, develops, distributes, and sells coatings and related products to professional, industrial, commercial, and retail customers. The company operates a chain of nearly 5,000 company-run stores and facilities. Sherwin-Williams generates revenues of roughly $23 billion.
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