Fitch Skeptical of When U.S. Corp Issuers Will Repatriate Foreign Cash to Reduce Debt

Fitch Ratings' greatest concern in recognizing foreign cash balances as cash that may be netted against long-term debt is the reluctance of issuers in repatriating cash and their willingness to add leverage to the domestic balance sheet to fund domestic outflows. Fitch is skeptical in terms of when this cash would be repatriated for the benefit of bondholders.

In order to fund domestic acquisitions and shareholder-related outflows, certain issuers, have been increasing absolute levels of debt, adding additional leverage to the domestic balance sheet. For certain issuers, this has resulted in domestic balance sheet leverage levels that are significantly higher than consolidated leverage position.

For more details on our approach to treating foreign cash balances of U.S. issuers in existing ratings and the risk to investors in issuers maintaining higher leveraged domestic balance sheets, relative to consolidated leverage positions, see the special report 'Treatment of Foreign Cash in Evaluating U.S. Issuers: Additional Scrutiny for Net Leverage Ratios and Liquidity Profiles', published today on 'www.fitchratings.com'.

In this special report, Fitch profiles 'A' rated or above companies with estimated domestic leverage compared to consolidated leverage, showing the extent of this polarity between consolidated leverage and domestic leverage.

Fitch may geographically deconsolidate its credit analysis in situations where it is materially concerned with the risk of a separation of foreign assets, the risk of material cash controls being initiated, or an inability of an issuer to freely move cash between foreign subsidiaries and the U.S. parent.

Fitch recognizes that these foreign cash balances are an asset that can be accessed, albeit at a potential tax cost, in the event it is necessary to stave off default or a liquidity crisis. For certain issuers with significant levels of foreign cash balances, and absent the events listed above, Fitch may supplement its core metrics with adjusted net leverage ratios. The level of foreign cash balances used in these supplemental ratios represents the foreign cash balance level that influences existing ratings. While Fitch may calculate a supplemental adjusted net leverage ratio, gross leverage remains a primary ratio when evaluating the credit.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Treatment of Foreign Cash in Evaluating U.S. Issuers (Additional Scrutiny for Net Leverage Ratios and Liquidity Profiles)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=823869

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