OREANDA-NEWS. S&P Global Ratings assigned its 'B' corporate credit rating to global ophthalmic products manufacturer Beaver-Visitec International Holdings Inc. The outlook is stable.

At the same time, we assigned our 'B' issue-level rating to the company's proposed $30 million revolving credit facility and a $170 million term loan. We assigned this debt a recovery rating of '3', indicating our expectation for meaningful (50%-70%, at the lower end of the range) recovery in the event of a payment default.

We also assigned our 'CCC+' issue-level rating to the company's proposed $80 million second-lien term loan. We assigned this debt a recovery rating of '6', indicating our expectation for negligible (0%-10%) recovery in the event of a payment default.

Beaver-Visitec is a leading manufacturer of single-use (disposable) surgical tools used in eye surgeries. Our assessment of the company's business risk profile as weak reflects the company's small scale (about $135 million of revenues in 2015), a very narrow therapeutic concentration with about 85% of revenues generated by products used in cataract procedures, the presence of competitors with substantially greater size and financial strength, and the reliance on only a few manufacturing sites. These characteristics are only partially offset by good product, customer, and geographic diversity, and a degree of product differentiation and manufacturing expertise that supports brand loyalty and leads to some pricing flexibility.

The company's product families include surgical knives (some of which include a differentiated and patented safety-feature to prevent needle-stick type injuries), cannulas (surgical instrument with a thin tube used for delivering or draining fluid during surgery), fluid control products (absorb eye fluids during eye surgery) and punctal plugs (a tear duct plug that prevents drainage of liquid from the eye, as a treatment for dry eye). The company also provides custom kits that conveniently package surgical tools to help surgeons streamline procedure efficiency.

"The stable rating outlook reflects our expectation that revenue will grow helped by the aging population and increasing penetration of cataract surgery in developing markets," said S&P Global Ratings credit analyst Elan Nat. We also expect the ccompany will generate moderate discretionary cash flow, but believe its adjusted debt leverage will remain above 5x over the next two years given the financial policy under the financial sponsor ownership.

We could lower the rating in 2017 if free cash flow is reduced to negligible levels. In our view, this could happen if the company encounters problems in its planned transition to the new Juarez, Mexico, manufacturing facility, resulting in elevated production costs or an inability to service orders. Alternatively, intensified competition leading to at least a 5% decline in revenues, coupled with margin contraction of about 400 basis points could result in a downgrade.

It is unlikely that we would raise the rating in the next few years, given the company's ownership by private equity investors and its narrow therapeutic focus and small scale.