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Rating Action:

CORRECTION TO TEXT: MOODY'S ASSIGNS A B1 RATING TO FISHER SCIENTIFIC'S CONVERTIBLE SENIOR NOTES; ALL OTHER RATINGS REMAIN UNCHANGED; OUTLOOK IS STABLE

25 Jul 2003
CORRECTION TO TEXT: MOODY'S ASSIGNS A B1 RATING TO FISHER SCIENTIFIC'S CONVERTIBLE SENIOR NOTES; ALL OTHER RATINGS REMAIN UNCHANGED; OUTLOOK IS STABLE Moody’s Investors Service assigned a B1 rating to Fisher Scientific, Inc.’s $300 million 2.50% Senior Unsecured Convertible Notes, a rating at the Issuer Rating level. In so doing, Moody’s cited the company’s strong and improving financial performance, supported by substantial recurring revenues; its track record in successfully integrating acquisitions; its position in its market; and the rapidity with which it is likely to reduce its debt burden. The company’s improving financial performance, which had been putting upward pressure on the ratings, will offset its assumption of significant new debt and acquisition integration risks. The outlook for all ratings remains stable.

The rating actions are summarized below:

(i) Assign a B1 rating to Fisher Scientific’s $300 million 2.50% Senior Unsecured Convertible Notes; (ii) Affirm Fisher Scientific’s senior implied rating of Ba3;
(iii) Affirm Fisher Scientific’s issuer rating of B1;
(iv) Affirm the Ba3 rating of Fisher Scientific’s $175 million guaranteed senior secured revolving credit facility due 2/21/2008;
(v) Affirm the Ba3 rating on Fisher Scientific’s $399 million guaranteed senior secured term loan due 02/18/2010;
(vi) Affirm the B1 rating on Fisher Scientific’s $142 million in 7.125% senior notes due 12/15/2005; and
(vii) Affirm the B2 rating on Fisher Scientific’s $357 million in 8.125% guaranteed senior subordinated global notes due 05/01/2012.

The stable rating outlook reflects Moody’s belief that Fisher will continue to grow revenues at a mid- to high single digit rate and that EBITDA will grow at a rate in the low to mid-teens. The outlook further incorporates Moody’s expectation that the company will make no further material debt-financed acquisitions over the next two years, utilizing free cash flow from operations or asset sales to reduce debt. If Fisher’s growth rate accelerates, or if the company sells assets and so reduces debt faster than anticipated, the outlook could change to positive or the ratings could rise. If growth in EBITDA falters materially, however, perhaps as a result of unexpected difficulties in integrating the acquisition or a slowdown in the company’s key markets, thereby limiting Fisher’s ability to reduce debt, or if the company makes another significant debt-financed acquisition, the outlook could change to negative or the ratings could fall.

Fisher’s financial performance is strong and has been improving, a trend Moody’s expects to continue. EBITDA has grown from $218.0 million in 2000 to $318.0 million in 2002, for a CAGR of 20.8%. The rating agency expects EBITDA to continue to grow at a rate in the mid-teens over the next two years. Improving gross margins and better working capital management, together with acquisitions, have driven growth in EBITDA. Moody’s expects gross margins to continue to improve over the rating horizon. Despite the increase in debt, EBITDA/Interest should continue to improve, rising to above 4.0x by the end of 2003. The company’s position in the market, where it serves as an intermediary between a fragmented supplier base and a fragmented customer base, coupled with its ability to self-manufacture, has driven these trends. Further supporting its performance is its base of recurring revenues; about 83% of revenues are derived from consumables.

Fisher has a track record in successfully integrating acquisitions. The company has made a number of significant acquisitions in recent years. Although it had to write down some goodwill in 2002, it has also managed to reduce SG&A expense as a percent of sales as a result of its success in integrating its acquisitions, most recently Cole-Parmer, and capitalizing on the fixed cost leverage in its existing businesses.

Fisher has a strong position in its market. The company sells more than 600,000 products and services, which it obtains from a wide range of suppliers as well as manufactures itself, and sells these to more than 350,000 customers. The fragmented nature of its sources of supply as well as its customer base, coupled with its ability to manufacture its own products, help it to maintain and even improve gross margins. (Self-manufactured products, Fisher branded products and products for which the company serves as the exclusive manufacturer account for about 40% of revenues.) Moody’s expects Fisher to continue to make improvements in its gross margins as a result.

Despite the significant increase in debt associated with the acquisition, Fisher is likely to reduce its burden quickly. In Moody’s opinion, Fisher is likely to reduce leverage, as measured by Total Debt/EBITDA, to levels comparable with existing ones within 12-18 months of completing the transaction.

Constraining the ratings are the company’s intermittent restructuring charges, its negative net worth and the modest expected growth for its scientific research and industrial business segment. Fisher has incurred restructuring charges in 1998, 1999 and 2000. The most recent charges, which relate to the integration of its international operations and the streamlining of its domestic operations, reflect the cost of generating growth through multiple acquisitions.

Fisher also has substantial goodwill on its balance sheet, another result of growth through acquisition. Given its thin equity base, the company has negative tangible net worth as a result.

Finally, the scientific research and industrial segment, which represented 70% of domestic distribution revenues and the majority of international distribution revenues in 2002, is growing at a low- to mid-single digit range. While some factors constraining growth, notably the poor general economic conditions, may well reverse themselves over the rating horizon, others, notably reduced government funding for research, the result of government budget deficits, are less likely to do so. Modest growth in this business segment constrains the company’s growth potential overall.

Fisher Scientific International, Inc., based in Hampton, New Hampshire, distributes and manufactures an array of products to the scientific research, clinical laboratory and industrial safety markets, both domestic and international. Revenues in 2002 were approximately $3.2 billion. Perbio’s revenues for the four quarters ending March 31, 2003 were approximately $232 million.
No Related Data.
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