Fitch Rates Thermo Fisher's EUR Senior Notes 'BBB'; Outlook Stable
The ratings apply to \\$13.2 billion of debt at Sept. 26, 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 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 Q3'15, 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 \\$4.0 billion.
At Sept. 26, 2015, Fitch calculates gross leverage of 3.1x, 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 \\$670 million of additional debt paydown by the end of 2015.
Fitch forecasts Thermo Fisher will produce FCF of around \\$2.4 billion in 2015, which is sufficient to accomplish necessary debt reduction. It is likely that the company will also deploy capital for bolt on acquisitions. 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 \\$670 million 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 \\$2.5B 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, supports the ratings. Therefore, 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 the company fails to 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 require a commitment from the company to maintain leverage below 2.5x.
AMPLE LIQUIDITY
Thermo Fisher's ample liquidity supports the 'BBB' credit profile. At Sept. 26, 2015, sources of liquidity included \\$503 million of cash on hand, \\$1.9 billion of available capacity on the bank facility revolving loan and 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, \\$4.0 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 EUR400 senior notes, will provide liquidity to address 2016 note maturities.
FULL LIST OF RATING ACTIONS
Fitch 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.
Life Tech had approximately \\$1.5 billion of senior notes due 2016, 2020 and 2021 prior to the acquisition that remain outstanding. Life Tech is now a wholly-owned operating subsidiary of the parent company, Thermo Fisher Scientific, Inc. The parent company is the issuer and obligor of all other debt in the capital structure. There are no upstream or downstream guarantees of the debt outstanding at either of the parent or Life Tech subsidiary level.
The debt issued by the Life Tech subsidiary is therefore structurally senior to the debt outstanding at the parent level to the extent of the assets of the subsidiary. Despite the lack of guarantees and a potentially stronger financial profile at the Life Tech subsidiary, the ratings are equalized at the parent's 'BBB' rating since Fitch believes there are strong operational and strategic linkages between the parent and subsidiary. Furthermore, Thermo Fisher consolidates the results of the Life Tech subsidiary at the parent company level. Without stand-alone financials at the subsidiary level Fitch cannot assess its financial status on an on-going basis.
Date of relevant rating committee: December 17, 2014
Комментарии