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Rating Action:

Moody's assigns P-1 short-term rating to DH Europe Finance S.A.

03 Aug 2015

New York, August 03, 2015 -- Moody's Investors Service assigned a P-1 short-term rating to DH Europe Finance S.A., the recently-formed debt-issuing subsidiary of Danaher Corporation. The rating outlook is negative.

RATINGS RATIONALE

The assignment of the P-1 rating reflects Danaher's unconditional guarantee of the obligations of DH Europe Finance S.A. Danaher's short-term rating is P-1. Its guarantee of DH Europe Finance S.A. covers issuances under the company's new $11.5 billion multi-currency commercial paper program and the unsecured notes that DH Europe Finance S.A. issued in July 2015. These notes are rated A2, also based on the unconditional guarantee of Danaher. The proceeds of these notes and of commercial paper issuances along with cash will fund the upcoming closing of the previously announced acquisition of the Pall Corporation by Danaher. Danaher agreed to purchase Pall for $13.8 billion, including assumed debt and net of acquired cash. Moody's anticipates that the acquisition will close during the third quarter and will be majority-funded with debt, including 50% or more with commercial paper.

Moody's maintains a negative outlook on the A2 Senior Unsecured and Prime-1 Short-Term ratings assigned to Danaher since 13 May 2015 when the company announced the Pall transaction. Management plans to split the company into two independent, publicly-traded companies sometime in 2016, with the surviving Danaher entity focusing on the science and technology sectors, with the spun-off operations concentrating on industrial product markets.

The negative outlook contemplates the higher financial risk from funding the acquisition mostly with debt and the potential for some challenges in the integration of Pall. The negative outlook also recognizes the uncertainty regarding how the planned spinoff of the industrial product operations will affect the business profile, financial policies, and capitalization of Danaher. The use of significant amounts of commercial paper increases the company's reliance on short term funding well above historical levels and increases financial risk in the near term. The negative outlook also considers the potential for the pace of improvement in credit metrics to trail the company's expectations.

The A2 rating reflects Danaher's demonstrated history of maintaining a conservative capital structure while significantly growing via acquisitions. The Pall acquisition will be the company's largest investment yet, about double the size of the 2011 Beckman-Coulter acquisition. Pro forma credit metrics will weaken relative to the medians of the single-A rating category with the initial almost tripling of funded debt. However, Moody's expects Danaher to progressively restore credit metrics to levels that support the A2 rating during the 18 months following closing, mainly from free cash flow generation.

Demonstrating de-leveraging of the capital structure subsequent to the closing of the acquisition will be important for limiting downwards pressure on the ratings. Doing so would strengthen credit metrics, moving projected Debt to EBITDA towards 2.3 times and projected EBITA to Interest towards 11 times, levels supportive of the A2 rating and on their way back to pre-announcement levels. We expect that Danaher will manage its acquisition and shareholder return strategies in a manner that enables it to achieve significant de-leveraging following the acquisition. The valuation of the spin-off company and its capital structure will be an important source of liquidity for Danaher, which it could use to further de-leverage the post-acquisition balance sheet.

The ratings could be downgraded if credit metrics do not show steady improvement in 2016. Debt to EBITDA being sustained above 2.5 times and EBITA to Interest being below 7.0 times could be problematic for the A2 rating. A significant inflow of cash that is used to repay debt, particularly short-term debt, could lead to a stabilization of the rating outlook.

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

Danaher Corporation ("Danaher") is a manufacturer with operations organized into five segments: Life Sciences & Diagnostics, Test & Measurement, Environmental, Industrial Technologies, and Dental. Principal end-markets include analytical and physical instrumentation, medical and dental products, motion and industrial sensors, automation controls, product identification, and aerospace and defense. Danaher's strategy calls for the use of cash, debt, and equity to fund acquisitions to augment organic growth. Revenue in 2014 was approximately $19.9 billion or about $21 billion when including the annual run-rate of completed acquisitions. Subject to completion of Danaher's proposed transaction with NetScout Systems, Inc., revenue in the Test & Measurement segment could decline by some 22% or $0.8 billion.

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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.

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Jonathan Root
VP - Senior Credit Officer
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 P-1 short-term rating to DH Europe Finance S.A.
No Related Data.
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