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Rating Action:

Moody's affirms Fortive's Baa1 senior unsecured rating; outlook remains stable

16 Jun 2021

New York, June 16, 2021 -- Moody's Investors Service has affirmed all ratings of Fortive Corporation ("Fortive"), including the Baa1 senior unsecured debt rating and Prime-2 short term rating. The outlook remains stable.

The ratings affirmation reflects Moody's anticipation of continued strong margins and moderate leverage. The company has recently completed a multi-year re-balancing of its portfolio of businesses, including multiple acquisitions and divestitures. Most recently, in 2021 the company repaid around $1.6 billion of debt with the proceeds of the spinoff of several industrial and automotive businesses into Vontier Corporation (Ba1 stable).

"With the recent portfolio rebalancing behind it, Fortive's high margin businesses and conservative capital structure positions the company well to continue to invest in growth," says David Berge, Moody's Senior Vice President and lead analyst for the company. "However, risks associated with future acquisitions and the potential for increased leverage to fund these investments will constrain the rating until the company has established a longer track record of stable financial policies."

Affirmations:

..Issuer: Fortive Corporation

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Conv./Exch. Bond/Debenture, Affirmed Baa1

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

Outlook Actions:

..Issuer: Fortive Corporation

....Outlook, Remains Stable

RATINGS RATIONALE

Fortive's ratings are supported by its diversified portfolio of products, with strong brands and leading market positions. Through a successful series of M&A activity over the past five years, the company has developed a balanced set of businesses serving multiple end markets. Fortive generates strong EBITA margins of about 20%, which results in free cash flow that is expected to be consistently above $500 million annually over the next few years. Ratings are also supported by moderate leverage, despite over $8 billion of acquisitions since the company's 2016 separation from Danaher Corporation. Moody's expects that Fortive will maintain debt-to-EBITDA in the mid-2x range through 2022, absent a large acquisition.

The ratings are constrained by Fortive's modest size and short track record as an independent company when compared to higher-rated industrial issuers, along with risks associated with its acquisition growth strategy. Moody's expects that Fortive will resume a robust pace of acquisitions over the next 12-18 months. Given high valuation multiples for many likely target assets, especially in the medical technologies arena, M&A could result in increased leverage. Also, although the company has done well to sustain margins through recent acquisitions, future acquisitions will entail integration risk, and potential distraction from core operations.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable rating outlook reflects Moody's expectations for modest organic growth supplemented by a balanced approach to acquisitions.

Fortive's ratings could be upgraded if the company demonstrates a track record of sustained margins and cash flow as it executes its acquisition growth strategy. As well, the rating could be upgraded if the company maintains debt-to-EBITDA in the low-to-mid 2x range, demonstrating a commitment to conservative financial policies.

Ratings could be downgraded if Fortive substantially increases leverage for acquisitions or share repurchases. Debt-to-EBITDA sustained in excess of 3.0x could prompt a downgrade. Difficulties in integrating acquisitions or executing on its operating plan that results in EBITA margins falling below 15% or a weakening in liquidity could also lead to a lower rating.

Fortive Corporation is a diversified industrial-focused company that provides testing devices and sensors to measure and monitor a wide-range of industrial and healthcare applications. Revenue is approximately $4.7 billion.

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

David Berge, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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