Fitch Affirms Cooper Industries Ratings.

CHICAGO -- Fitch Ratings has affirmed the ratings for Cooper Industries, Ltd.'s (NYSE: CBE) senior unsecured debt and commercial paper at 'A' and 'F1', respectively. The Rating Outlook is Stable. The ratings cover approximately $1.3 billion of debt.

The ratings are supported by Cooper's leading market positions in the majority of its product lines, ability to generate strong free cash flow through business cycles, and conservative financial policies, including a debt to capital target ratio of 35%-45%. Concerns include asbestos liabilities and cash deployment actions, including acquisitions and share repurchases. In the current up cycle, Fitch expects CBE to continue to improve margins, maintain stable free cash flow, and pay down debt maturities in 2005, further improving credit metrics.

The Rating Outlook reflects the cyclical nature of CBE's businesses, improving margin trends, the impact improving end markets are having on CBE's balance sheet and credit statistics, disciplined capital spending, and healthy free cash flow generation.

CBE's margins started to improve in 2004, and Fitch expects them to continue to expand in 2005. Profitability has benefited from productivity improvements, a shift in manufacturing to low-cost locations, and higher pricing implemented by CBE in 2004. Both of CBE's segments (Electrical Products and Tools and Hardware) have shown improvement in margins consistently since 2003, although rising raw material costs may offset some of the progress.

Margin expansion, combined with expected debt reduction, should contribute to stronger credit metrics. Given CBE's moderate spending for capital expenditures, acquisitions, and dividends and share repurchases, Fitch expects that more than half of CBE's 2005 maturities ($760 million) will be paid down using the company's strong cash positions (cash on hand and free cash flow). The remaining balance is expected to be refinanced.

Capital expenditures have been maintained at about 2% of revenues (compared with more than 4% in the past), but they are expected to rise over the next couple of years due to IT-related projects. On a normalized basis, capital expenditures are expected to remain below depreciation.

CBE increased its dividend by 5.2% year over year during the first quarter of 2005 after several years of flat dividend payouts. While nominal increases going forward can be expected, Fitch does not expect substantial dividend increases over the near term. The company is authorized to repurchase up to 10 million shares in addition to buying back shares to offset dilution from stock plans, and the company has repurchased approximately 50% of the authorized shares since 2000, spending approximately $200 million. Fitch expects CBE to repurchase shares mainly to offset dilution in the near term. If share repurchases restrict the company's ability to reduce debt and to maintain leverage that is appropriate for the current rating category, a review of the rating and/or Outlook may be considered.

CBE resumed acquisitions in 2004, spending a little under $50 million, after refraining from such transactions for three years. Fitch expects the company to continue to make acquisitions going forward but does not expect any significant transactions in the near term.

Concerns include CBE's asbestos liabilities related to sale of its automotive operations to Federal-Mogul (FMO) in 1998. FMO has not yet decided whether to accept or reject the 1998 Purchase and Sale Agreement, including the indemnity obligations of each party, but the expectation is that the agreement will be rejected. If it is rejected, CBE can participate in the trust FMO establishes to resolve other asbestos liabilities, and CBE has concluded that a resolution within FMO's proposed asbestos trust would likely be within the range of CBE's liabilities net of insurance recoveries. Federal legislation being considered in Congress could be another source of resolution for CBE's asbestos issues.

CBE has ample liquidity; it has $525 million in cash, and no borrowings were outstanding under its $500 million credit facilities at March 31, 2005. LTM EBITDA interest coverage at March 31, 2005 was 9.2 times (x), compared with 9.0x in 2004 and 7.0x in 2003. Debt/LTM EBITDA at March 31, 2005 was 2.1x down from 2.4x in 2004 and 2.6x in 2003.

Fitch's rating definitions are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.