OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to Thermo Fisher Scientific Inc.'s (Thermo Fisher) EUR500 million senior notes. The proceeds of the Euro denominated issue will be used for general corporate purposes, including the repayment of upcoming debt maturities. The Rating Outlook is Stable.

The ratings apply to \\$14.7 billion of debt at March 28, 2015. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

--Thermo Fisher has demonstrated solid and consistently paced improvement in credit metrics since the first quarter of 2014 (1Q'14) acquisition of Life Technologies Corp. (Life Tech). The transaction added \\$11.3 billion of debt to the capital structure and resulted in a one-notch downgrade of the ratings.

--Through 1Q'15, Thermo Fisher has applied the majority of free cash flow (FCF; CFO less capital expenditures and dividends) plus about \\$1 billion in proceeds from business divestitures to debt reduction, reducing the post-acquisition debt balance by about \\$3.9 billion.

--At March 28, 2015, Fitch calculates gross leverage of 3.5x, versus a pro forma level of 4.5x at the end of 2013. Maintenance of the 'BBB' rating contemplates Thermo Fisher reducing gross leverage to 3.0x or below by the end of 2015. Assuming the company meets Fitch's base case forecast for 2015 EBITDA of \\$4.2 billion, meeting this target will require about \\$2 billion of additional debt paydown by the end of 2015.

--Fitch forecasts Thermo Fisher will produce FCF of \\$2.4 billion in 2015, which sufficient to accomplish necessary debt reduction. It is likely that the company will also deploy capital for bolt on acquisitions during 2015. As long as this does not derail progress in deleveraging, it is not likely to result in a downgrade of the ratings.

--EBITDA growth should also contribute to leverage reduction. The integration of the Life Tech business is proceeding smoothly, demonstrated by Thermo Fisher raising the target for cost synergies; revenue synergies should also be a tailwind to growth in 2015.

KEY ASSUMPTIONS
--Thermo Fisher's gross debt leverage drops to 3.0x by the end of 2015 due to \\$2 billion of debt repayment.
--Organic currency neutral revenue growth of about 3% in 2015-2016. This is reflective of Fitch's general expectations for growth in the life sciences sector. Persistent headwinds in the academic and government end markets in developed markets will be offset by good growth in emerging markets and by faster growth in the healthcare and diagnostics end markets.
--The operating EBITDA margin rises slightly through the end of 2016 due to some continued cost benefits from the integration of Life Tech, as well as a stable to slightly improving pricing environment.
--CFO is sufficient to fund a slightly increasing dividend, about \\$2.5 billion of debt reduction in 2015-2016, and a small amount of bolt on acquisitions.

RATING SENSITIVITIES
Thermo Fisher's favorable business profile, with significant scale, good end market diversification and improved product mix following the Life Tech acquisition, is supportive of the ratings. For that reason, rating actions are more likely to be triggered by capital deployment decisions than by an operational stress scenario.

Maintenance of the 'BBB' IDR contemplates Thermo Fisher reducing leverage to 3.0x total-debt-to-EBITDA by the end of 2015. A downgrade could result if it appears likely that the company will not meet this target because cash deployment for acquisitions or shareholder pay-outs delays debt repayment and growth in EBITDA is hampered by difficulties in the integration of Life Tech. A positive rating action is not anticipated before the end of 2015, since it would consider the company committing to maintain leverage below 2.5x.

AMPLE LIQUIDITY

Thermo Fisher's ample liquidity is supportive of the 'BBB' credit profile. At March 28, 2015, sources of liquidity included \\$864 million of cash on hand, \\$1.9 billion of available capacity on the bank facility revolving loan and latest 12 months (LTM) FCF of \\$1.9 billion. The credit facility is back-up for the commercial paper (CP) program and if the revolver is drawn the company intends to leave an available balance at least equal to the amount of CP outstanding.

The debt maturity schedule of the company's senior notes is laddered, but 2015-2016 debt maturities are elevated because of the terms of the debt issued to fund the acquisition. Thermo Fisher used a high proportion of debt with a relatively short tenure to facilitate rapid deleveraging post the acquisition of Life Technologies. Since the close of the acquisition, \\$3.9 billion of cash and asset sale proceeds have been used to pay down short-term debt. The proceeds of recent notes issuances, including the proposed EUR500 senior notes, will provide liquidity to address 2016 note maturities.

FULL LIST OF RATING ACTIONS

Fitch currently rates Thermo Fisher as follows:

Thermo Fisher Scientific, Inc.
--Long-term IDR and senior notes 'BBB';
--Short-term IDR 'F2';
--Commercial paper 'F2'.

Life Technologies Corp.
--Long-term IDR and senior notes 'BBB'.

The Rating Outlook is Stable.