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Rating Action:

Moody's assigns Baa1 Senior Unsecured Rating to Fortive; stable outlook

06 Jun 2016

Approximately $2.5 billion of rated debt affected

New York, June 06, 2016 -- Moody's Investors Service (Moody's) assigned Baa1 ratings to Fortive Corporation's (Fortive) proposed senior unsecured notes expected to be issued in four tranches approximating $2.25 billion. At the same time, Moody's affirmed the P-2 Commercial Paper rating and withdrew the Baa1 Issuer Rating. The outlook is stable.

Moody's notes that the senior unsecured bonds will be initially guaranteed by current parent, Danaher Corporation (A2 negative), but the guarantees will be automatically and unconditionally released at the time of the spin-off of Fortive which is expected on or around July 2, 2016.

RATINGS RATIONALE

Fortive's Baa1 senior unsecured rating reflects the company's highly diversified product portfolio highlighted by market leading positions in various industrial end markets. Fortive has strong margins and return measures, both of which compare favorably to other industrial peers at similar rating levels. Moody's expects Fortive to preserve its low-20% operating margin with the continuation of significant research and development expenditures and its proven, highly-effective continuous improvement program, Fortive Business System. The operating margin and scale, in conjunction with Fortive's modestly capital intensive operating model and working capital control, translates into Moody's expectation for robust free cash flow of at least $900 million in 2016. Moody's also expects that free cash flow, along with any incremental debt, will be utilized for acquisitions.

The rating outlook is stable, reflecting Moody's expectations for steady but relatively modest organic revenue growth (1-2% annually) supplemented by acquisition-related growth, the maintenance of strong margins (> 20%) and annual free cash flow generation in addition to an improving liquidity profile even with an active acquisition strategy. More specifically, the stable outlook encompasses the expectation for Fortive to balance its acquisition appetite with credit metrics that remain supportive of its current rating level given Fortive's business risks, which would include debt-to-EBITDA in the 2x - 2.75x range and retained cash flow-to-debt of at least 20%.

There currently is no upward rating pressure but Moody's could upgrade the senior unsecured rating if Fortive utilizes a prudent growth/acquisition strategy to expand its scale and scope to have a revenue base consistent with other companies at the higher rating level and materially enhance its recurring revenue stream - currently in the 20% range - to help mitigate vulnerability to economic cycles. Strong return measures and evidence of the ability to sustain market leadership in industries which have favorable growth characteristics would also be important considerations. In addition, a stronger liquidity profile bolstered by the establishment of a meaningful cash position and increasing free cash flow generation could also result in upward rating momentum.

The rating could be downgraded if Fortive undertakes larger-scale acquisitions that require significant debt-financing in excess of free cash flow generation. More specifically, debt-to-EBITDA expected to be sustained in the upper 2x range or higher could result in a downgrade Additionally, sustained negative organic revenue growth, an operating margin trending towards the upper teens or free cash flow-to-debt falling to the mid-teens could create downward rating pressure. Sizeable acquisitions that could be challenging to integrate or are in industries outside of Fortive's core/adjacent markets could also pressure the rating.

Moody's took the following rating actions on Fortive Corporation:

- Senior Unsecured ratings assigned at Baa1

- Commercial Paper rating affirmed at P-2

- Issuer Rating of Baa1 withdrawn

- Rating outlook is stable

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Everett, Washington, Fortive Corporation is a diversified industrial-focused company that provides testing devices and sensors to measure and monitor a wide-range of industrial applications, fuel dispensing, point-of-sale and payment systems, vehicle fleet tracking and management solutions, electronic motion control products, braking systems for commercial trucks and franchised professional tools and wheel-service equipment distributors. Revenues for the latest twelve months ended March 31, 2016 were approximately $6.2 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Eric Greaser
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

Robert Jankowitz
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 assigns Baa1 Senior Unsecured Rating to Fortive; stable outlook
No Related Data.
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