• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Rating Action:

Moody's downgrades Thermo Fisher to Baa1; outlook stable

Global Credit Research - 16 Jul 2012

Approximately $6.6 billion of rated debt affected

New York, July 16, 2012 -- Moody's Investors Service downgraded the senior unsecured rating and all rated senior unsecured notes of Thermo Fisher Scientific, Inc. ("Thermo Fisher") by one-notch to Baa1 from A3. Concurrently, Moody's affirmed the Prime-2 rating on Thermo Fisher's commercial paper program. The rating outlook is stable.

The downgrade of the ratings follows Thermo Fisher's announcement that it will acquire One Lambda, Inc. for approximately $925 million and increase its share repurchase authorization for the remainder of 2012 by $500 million. Moody's expects that Thermo Fisher will raise an incremental $1.3 billion of debt to fund the acquisition and share repurchases.

The One Lambda acquisition comes roughly a year after the company significantly increased financial leverage to fund the acquisitions of Dionex and Phadia, for total of about $5.5 billion. Since those acquisitions, the company has also repurchased roughly $1 billion of its shares and also initiated a regular cash dividend of about $200 million per year. As a result of Thermo Fisher's appetite for acquisitions and its use of free cash flow to fund share repurchases and dividends in lieu of debt repayment, Moody's expects adjusted debt to EBITDA will remain elevated, at around 3.0 times through 2013. "While Thermo Fisher continues to have the size, market position and diversity of an A-rated company, the company has consistently demonstrated financial policies that favor shareholders at the expense of creditors" said Jessica Gladstone, Vice-President and Senior Analyst at Moody's. "As a result, we believe that Thermo Fisher's leverage and credit metrics—while still solid-- no longer support a single-A rating" added Gladstone.

Ratings downgraded:

Senior unsecured rating, to Baa1 from A3

Senior unsecured shelf, to (P)Baa1 from (P)A3

Subordinated shelf, to (P)Baa2 from (P)Baa1

Ratings affirmed:

Prime-2 commercial paper program

The outlook is stable.

RATINGS RATIONALE

The Baa1 rating reflects Thermo Fisher's leading position in the life science market, as well as the company's product and end-user market diversity. The credit profile benefits from the recurring, predictable nature of about two thirds of revenue, which is generated from the sale of consumables and services. As a result, the company's revenue and cash flow has demonstrated resiliency throughout economic cycles. The Baa1 rating is also supported by the company's significant free cash flow and solid credit metrics. The ratings are constrained by Thermo Fisher's aggressive appetite for acquisitions, as well as its shareholder friendly financial policies, which Moody's believes will prevent it from materially reducing leverage in the near-to-intermediate term.

The stable rating outlook reflects Moody's expectation that Thermo Fisher will continue to demonstrate low to mid-single digit organic revenue growth and generate annual free cash flow after dividends of $1.3 to $1.4 billion. The stable outlook incorporates the expectation that Thermo Fisher will continue to deploy free cash flow to fund share repurchases and tuck-in acquisitions but that pro forma leverage will be sustained between 2.5 to 3.0 times.

Moody's does not foresee an upgrade to Thermo Fiser's ratings given its aggressive financial policies and elevated leverage. Over time, if Thermo Fisher demonstrates a commitment to more conservative financial policies, including sustaining adjusted debt/EBITDA below 2.5 times, Moody's could upgrade the ratings. Moody's could downgrade the ratings if Thermo Fisher's financial policies become more aggressive, including undertaking another large debt-funded acquisition. If Thermo Fisher is expected to sustain leverage above 3.0 times, Moody's could downgrade the ratings.

For further detail, please refer to www.moodys.com for Moody's credit opinion on Thermo Fisher Scientific Inc. and related entities.

The principal methodology used in rating Thermo Fisher Scientific Inc was the Global Medical Products & Device Industry Methodology published in October 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Thermo Fisher Scientific Inc., (NYSE:TMO) based in Waltham, Massachusetts, is a diversified manufacturer and distributor of analytical instruments, equipment, reagents and consumables, and also provides software and services for research, manufacturing, analysis, discovery and diagnostics. For the twelve months ended March 31, 2012, Thermo Fisher had revenues of about $12.1 billion.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Jessica Gladstone
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Thermo Fisher to Baa1; outlook stable
No Related Data.

 

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