(The following statement was released by the rating agency) NEW YORK, February 02 (Fitch) Fitch Ratings has assigned a rating of 'BBB+' to Johnson Controls International plc's (JCI) planned 30-year fixed-rate senior unsecured notes. The Rating Outlook is Stable. Proceeds will be available for general corporate purposes. A full list of ratings follows at the end of this release. KEY RATING DRIVERS The planned increase in JCI's debt partly reflects the company's seasonally negative free cash flow early in the year and one-time cash requirements related to recent transactions including the Adient spin-off and the acquisition of Tyco International. At Dec. 31, 2016, debt increased to $13.2 billion from $12.8 billion at FYE Sept. 30, 2016. However, Fitch continues to expect that JCI's debt will decline by the end of fiscal 2017 to the mid-$11 billion range. The ratings incorporate Fitch's expectation that JCI's consolidated leverage through the first half of fiscal 2018 could be somewhat higher than long-term levels anticipated by Fitch due to integration actions and transaction related costs from the Tyco acquisition. After the integration of Tyco is completed, Fitch expects JCI will maintain FFO adjusted leverage in a range near 3.5x and that debt/EBITDA could approach 2.5x as defined by Fitch. Other than leverage, some of JCI's characteristics, such as diversification and the overall operating margin when considering expected improvements, are consistent with 'A' category ratings. FCF will be reduced during the first one-to-two years by merger-related costs including restructuring and integration charges that should decline over time as the integration is completed. Fitch estimates FCF, excluding special items, will reach 4% of sales or higher by the end of 2017 or in 2018 and should be adequate to fund modest discretionary spending for acquisitions, share repurchases and other uses while maintaining steady debt and leverage over the long term. Fitch views leverage metrics as somewhat weak for the 'BBB+' rating; however, this concern is offset by JCI's market positions, steady FCF expected by Fitch following the merger, and financial flexibility including minimal limitations on available cash associated with the company's Irish domicile. Meaningful service and aftermarket business mitigates JCI's exposure to cyclical end markets. Other rating concerns include typical integration risks associated with the Tyco merger, restructuring costs to realign the combined company, a rapidly evolving automotive battery market served by JCI's Power Solutions, and future cash deployment for acquisitions and share repurchases. These concerns are offset by expected cost and tax synergies which should support future margins. Fitch believes acquisitions in the near term will be limited while JCI aligns the merged company. Power Solutions' strong competitive position and technical capabilities should enable it to participate in new battery technologies as they develop. Fitch views legacy liabilities from Tyco's past separations as manageable due to previous actions to address asbestos and income tax litigation. A rating strength is JCI's strong market positions within the company's fragmented building, fire and security markets, and a leading global market position for automotive batteries in the Power Solutions business. Results in the first quarter of fiscal 2017 included weak demand in the performance contracting, industrial refrigeration and products businesses due to slow activity in industrial and energy end-markets. However, overall order growth in JCI's Building business has been positive, and synergy targets related to the Tyco acquisition are on track. The company's expanded scale and broader technological capabilities from the Tyco acquisition should support its competitive position in fragmented markets, some of which are served by other large providers. Product development will be a key differentiator as digital technologies become increasingly important. JCI plans to expand margins over the next several years as it realizes at least $150 million of tax savings and $500 million of cost synergies through improved procurement and by consolidating overhead expenses. These amounts do not include revenue synergies or $400 million of productivity improvements underway at JCI and Tyco prior to the merger. KEY ASSUMPTIONS Fitch's key assumptions include: --Margins improve during the next several years as the merged company realizes tax savings, cost synergies between the legacy Tyco and JCI Building Experience businesses, and ongoing productivity improvements; --The Power Solutions business maintains its leading global market share including participating in new technologies; --Debt totals slightly more than $11 billion at the end of fiscal 2017; --The company's long-term leverage remains within steady ranges, including adjusted debt/EBITDAR in the low 3x range and FFO adjusted leverage in the mid-3x range; --FCF margin increases to around 4% of revenue or higher as restructuring and other transaction-related costs decline and margins increase. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a positive rating action include: --The integration of Tyco with JCI's Building Experience business leads to substantial gains in market share; --Higher margins and steady debt levels lead to consistently higher FCF and lower leverage, including FFO adjusted leverage below 3x; --FCF margin increases to 6%-7% compared to slightly above 4% as projected by Fitch. Future developments that may, individually or collectively, lead to a negative rating action include: --Inability to realize expected cost synergies and margin improvement during the next three years; --Ineffective product development, particularly in the Power Solutions business, leads to loss of market share or lower margins; --Leverage increases for more than a short period as a result of cash deployment for acquisitions or share repurchases, including FFO adjusted leverage above 4x or gross debt/EBITDA consistently above 2.5x. LIQUIDITY Liquidity at Dec. 31, 2016 included cash of $377 million and availability under $3 billion of bank credit facilities. The facilities consist of a $2 billion facility at JCI and a $1 billion facility at Tyco International Holding S.a.r.l. (TSARL) that each mature in 2020. The bank facilities back commercial paper. Scheduled maturities of long-term debt are well distributed and include approximately $500 million in 2017 and $300 million in 2018. Net pension liabilities totaled $1.9 billion (76% funded) as of Sept. 30, 2016, of which a small portion was allocated to Adient when it was spun off in October 2016. Pension contributions are possible in 2017 but the amount will partly depend on the level of interest rates, which were at low levels at Sept. 30, 2016. FULL LIST OF RATINGS Fitch's ratings for JCI and its indirect subsidiary, Tyco International Holding S.a.r.l., are as follows: Johnson Controls International plc --Long-Term Issuer Default Rating (IDR) 'BBB+'; --Senior unsecured notes 'BBB+'; --Senior unsecured revolving credit facility 'BBB+'; --Short-Term IDR 'F2'; --Commercial paper 'F2'. Tyco International Holding S.a.r.l. --Long-Term IDR 'BBB+'; --Senior unsecured revolving credit facility 'BBB+'; --Senior unsecured term loan 'BBB+'; --Short-Term IDR 'F2'; --Commercial paper 'F2'. The Rating Outlook is Stable. Contact: Primary Analyst Eric Ause Senior Director +1-312-606-2302 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Philip Zahn Senior Director +1-312-606-2336 Committee Chairperson Jason Pompeii Senior Director +1-312-368-3210 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: [email protected]. Date of Relevant Rating Committee: Dec. 27, 2016 Summary of Financial Statement Adjustments - Fitch has made no material adjustments that are not disclosed within the company's public filings. Additional information is available on www.fitchratings.com. Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) https://www.fitchratings.com/site/re/885629 Additional Disclosures Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1018503 Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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