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I AGREE
15 May 2012
Approximately $4.2 billion of rated long-term debt
New York, May 15, 2012 -- Moody's Investors Service affirmed Danaher Corporation's ("Danaher")
A2 senior unsecured and Prime-1 short-term ratings and revised
the rating outlook to stable from negative. In a parallel action,
the rating agency affirmed the ratings (A2/Prime-1) of Danaher
Luxembourg Finance, S.A. whose obligations are fully
guaranteed by Danaher, as well as changed its outlook to stable
from negative. The actions reflect significant progress in lowering
the company's funded indebtedness following the acquisition of Beckman
Coulter, Inc. in June 2011, improving operating profitability,
realization of initial cost synergies anticipated in the transaction,
and prospects for sustainable growth in revenues and profitability going
forward. Collectively, these have better repositioned several
key credit metrics to parameters acceptable for the A2 rating category.
RATINGS RATIONALE
Beckman Coulter was Danaher's largest acquisition in its history
and significantly enhanced the company's position in the Life Sciences
business sector. While Danaher issued roughly $1.0
billion of equity to fund the transaction, it also borrowed substantial
sums. In Moody's view, the initial increase in leverage
and interest expense pushed certain metrics beyond levels indicative of
the A2 rating category at a time when the FDA had pulled approval of one
of Beckman Coulter's analytical instruments. From June 2011
through March 2012, Danaher lowered its funded debt levels by approximately
$1.7 billion, realized significant cost synergies
within Beckman Coulter, and maintained attractive margins on higher
sales volumes (a sequential decline was experienced in the first quarter
of 2012, but core growth of 2-5% is still anticipated
for 2012). Although the FDA has yet to approve the reintroduction
of the Dxl troponin instrument (a diagnostic for cardiac events),
Beckman Coulter has not experienced any material loss of revenue or customer
churn in its business model as a result. Indeed, its volumes
are reported to be modestly growing with performance benefiting from the
introduction of Danaher's management disciplines. Moody's
would gauge Danaher's debt/EBITDA to be under 2 times with EBITA/interest
well above 10 times, and its ability to generate free cash flow
remains robust. While the company will continue with a strategy
of supplementing organic growth through acquisitions, critical financial
ratios have returned to levels representative of the A2 rating category
and have established a degree of cushion to accommodate incremental debt
funded transactions.
The A2 senior debt rating reflects Danaher's position as a diversified
manufacturer of industrial and consumer products with considerable size,
strong brand name recognition and market shares in growth sectors of the
global economy. These contribute to broad customer, product
and geographic diversification including a significant emerging market
presence. The rating benefits from the company's scale, solid
capitalization, consistent profitability and free cash flow generation
characteristics. Strong margins have produced fairly robust coverage
metrics for the rating category with the company having a successful track
record of integrating acquired units. Nonetheless, periodic
spikes in leverage linked to an acquisition strategy can occur and produce
oscillation in quantitative ratios when larger transactions require external
funding and debt is subsequently paid down. The company's practice
has also included equity issuance in conjunction with significant transactions
which, along with retained earnings, has produced a durable
capital base. However, the acquisition strategy also establishes
a degree of uncertainty arising from integration concerns as the scale
of individual transactions can sometimes be large.
The stable outlook incorporates expectations of sustained revenues and
profitability, ongoing free cash flow generation and supportive
liquidity. Danaher is expected to continue to evaluate acquisition
opportunities whose funding could elevate its financial leverage.
A modest amount of incremental indebtedness could be accommodated within
the rating but substantial debt funded transactions could drive future
rating actions.
Stronger ratings could emerge should Danaher's debt/EBITDA approach 1.5
times, EBITA/interest coverage was sustainably above 12 times and
the potential for acquisitions to materially impact the company's
financial standing were moderated. In addition, receiving
FDA approval for the Dxl troponin instrument as well as maintaining a
successful track-record in obtaining future FDA approvals in new
instrument and consumable applications would be helpful prior to consideration
of stronger ratings. Downward pressure on the ratings could develop
should the company's leverage exceed 2.5 times or adverse trends
in revenues or margins were experienced and result in EBITA/interest coverage
falling below 7 times for a protracted period. In addition,
a decline in the combined organization's cash flow characteristics or
liquidity could lead to lower ratings.
Ratings affirmed:
Danaher Corporation
Senior Unsecured, A2
Short-term, Prime-1
Danaher Luxembourg Finance S.A.
Senior Unsecured, A2
Short-term Prime-1
The last rating action on Danaher was on June 15, 2011 at which
time its A2 and Prime-1 ratings were affirmed but the rating outlook
was changed to negative from stable.
The principal methodology used in rating Danaher Corporation was the Global
Manufacturing Industry published in December 2010. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
Danaher Corporation, based in Washington, D.C.,
is a diversified manufacturing company with interests in professional
instrumentation in test & measurement, environmental analysis,
dental equipment, life sciences, and industrial technologies.
Revenues in 2011 were roughly $18 billion inclusive of the annual
run-rate basis of units acquired during the year.
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,
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Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
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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.
Edwin Wiest
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
Michael J. Mulvaney
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 affirms Danaher's A2/Prime-1 ratings; outlook stable
No Related Data.
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