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Rating Action:

Moody's changes Quintiles' outlook to positive

Global Credit Research - 15 Jul 2013

Approximately $2.4 billion of rated debt affected

New York, July 15, 2013 -- Moody's Investors Service ("Moody's") affirmed the ratings of Quintiles Transnational Holdings Inc. (the parent company of Quintiles Transnational Corp.), including the B1 Corporate Family Rating and the B1-PD Probability of Default Rating. In addition, Moody's changed the rating outlook to positive from stable and assigned a first-time Speculative Grade Liquidity Rating of SGL-1, reflecting Moody's expectations for very good liquidity.

The positive outlook reflects Moody's expectation for improvement in credit metrics following approximately $350 million of debt repayment with proceeds from the company's recent initial public equity offering. The Speculative Grade Liquidity Rating of SGL-1 reflects the company's significant cash balance, Moody's expectation of at least $200 million of free cash flow per year, ample revolver availability and no financial maintenance covenants on the term loans.

Moody's Rating Actions:

Ratings Affirmed/LGD estimates revised:

Quintiles Transnational Corp.

$300 million senior secured revolving credit facility expiring 2017, B1 (LGD 3, to 46% from 42%)

$2.1 billion senior secured term loans due 2018, B1 (LGD 3, to 46% from 42%)

Quintiles Transnational Holdings Inc.

B1 Corporate Family Rating

B1-PD Probability of Default Rating

Ratings assigned:

Quintiles Transnational Holdings Inc.

Speculative Grade Liquidity Rating, SGL-1

Ratings withdrawn due to repayment:

Quintiles Transnational Holdings Inc.

$300 million Term Loan due 2017, B3 (LGD 5, 89%)

The outlook is positive.

RATINGS RATIONALE

Quintiles' B1 Corporate Family Rating is constrained by the company's financial leverage, which -- though improved --remains elevated, and the company's history of aggressive financial policies, including numerous dividends to shareholders and share repurchase transactions. The ratings also reflect risks inherent in the contract research organization ("CRO") industry, which is highly competitive, has high reliance on the pharmaceutical industry, and is subject to cancellation risk. We also expect pricing pressure in the industry to increase as pharmaceutical companies and CROs increasingly enter into large partnership deals, which often trade volume for price.

The ratings are supported by the company's size, scale and leading position as both a pharmaceutical CRO and a contract sales organization ("CSO"). Quintiles, as the largest pharmaceutical service provider, is well-positioned to gain market share and benefit from the industry's growth, the outlook for which is favorable, as pharmaceutical companies look to outsource an increasing portion of their non-core functions. The ratings are also supported by the company's liquidity profile, which Moody's anticipates will be very good over the next year.

Moody's could upgrade Quintiles' ratings if the company demonstrates continued stable revenue growth and margins. If, as a public company, Quintiles demonstrates a financial policy that balances both shareholder and creditor interests (i.e., the company refrains from doing large debt-funded shareholder dividends as it has done in the past), Moody's could upgrade the ratings. Specifically, if adjusted debt/EBITDA approaches 4.0 times and CFO/debt is sustained around 15%, Moody's could upgrade the ratings.

Moody's could downgrade the ratings if the company experiences revenue declines and/or margin erosion due to broader trends within the CRO or CSO industry or if the company undertakes a significant debt-financed acquisition or shareholder initiatives beyond Moody's expectations. For example, sustained CFO/debt below 10%, adjusted debt to EBITDA above 5.5 times, or negative free cash flow could lead to a downgrade.

The principal methodology used in rating Quintiles Transnational Holdings Inc. was the Global Business & Consumer Service Industry Rating Methodology, published October 2010. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Durham, North Carolina, Quintiles (NYSE: Q) is a leading global provider of outsourced contract research and contract sales services to pharmaceutical, biotechnology and medical device companies. The company is publicly traded but remains majority owned by founder and Chairman, Dr. Dennis Gillings, and private equity firms Bain, TPG, 3i and Temasek. Quintiles recorded net service revenue of approximately $3.7 billion for the twelve month period ended March 30, 2013.

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.

Jessica Gladstone
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

Peter H. Abdill, CFA
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 changes Quintiles' outlook to positive
No Related Data.

 

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