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15 Jun 2011
Approximately $2.5 billion of existing long-term debt
New York, June 15, 2011 -- Moody's Investors Service confirmed Danaher Corporation's
("Danaher") A2 senior unsecured and Prime-1 short-term
ratings, assigned (P)A2 rating to the company's unsecured
shelf filing and set the rating outlook at negative. The actions
conclude a review for possible downgrade that was announced upon disclosure
of Danaher's agreement to purchase Beckman-Coulter,
Inc. ("Beckman Coulter") in all cash tender offer in
which Beckman-Coulter's equity and convertible debt were
valued at roughly $6.8 billion.
Senior Unsecured, A2
Danaher Luxembourg Finance S. A.
Senior Unsecured, guaranteed notes, A2
Shelf filing, senior unsecured, (P)A2
The rating confirmation followed an assessment of the prospective credit
characteristics of the combined organization as well as Danaher's
financing plan for the acquisition. While Danaher's initial
leverage was viewed as being in the high 2 times range, the application
of expected free cash flow against this debt over the next 12-18
months was seen as lowering this towards 2 times. Similarly,
EBITA/interest coverage was seen as starting at close to 7 times but should
strengthen over the same time frame as outstanding balances are paid-down,
cost synergies are realized, and organic earnings growth is experienced.
Danaher's financing plan includes use of existing cash resources,
equity issuance, and both short and intermediate term notes as well
as commercial paper. Danaher circled approximately $877
million of net proceeds from an equity issuance on June 14 with the potential
for a further $88 million +/- if its underwriters exercise
an option for an additional 1.75 million shares.
Danaher plans to enter into a $2.2 billion bridge facility
with a group of banks which will back-up its approach to the capital
markets as well as its higher commercial paper issuance. The bridge
facility has a commitment period of 364 days and provides for a one year
term-out option to the borrower. Moody's is confident
that between the bridge facility and existing revolving credit facility
an acceptable back-up structure will be in place for the higher
short-term and current maturities of Beckman Coulter debt that
will be present at the onset of the transaction.
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 share. These contribute
to broad customer, product and geographic diversification including
a significant emerging market presence. The rating benefits from
the company's global scale, solid capitalization, and
consistent profitability and free cash flow generation which has been
applied to reduce periodic spikes in leverage linked to its acquisition
strategy. Historically, the combination of strong margins
has produced fairly robust coverage metrics for the rating category with
the company having a successful track record of integrating acquired units.
The company's acquisition strategy can produce oscillation in quantitative
ratios when larger transactions require external funding and debt is subsequently
paid down. This will be the case in the Beckman Coulter transaction
which will initially raise leverage to levels beyond those characteristic
of the rating category but which is expected to decline relatively quickly.
The company's practice has also included equity issuance in conjunction
with previous significant transactions which has produced a durable capital
base. However, this acquisition strategy also establishes
a degree of uncertainty arising from integration concerns should transactions
involve substantial debt or new lines of business.
The negative outlook reflects the stretch to Danaher's credit profile
that will occur following its largest transaction to date and risk associated
with the integration of Beckman Coulter into Danaher's Life Science
segment. Similarly, Beckman Coulter's troponin test (a diagnostic
for cardiac events) on its DxI instrument has yet to re-enter the
market, a contributing factor to an earlier negative rating outlook
on Beckman Coulter. Demonstrating that its de-leveraging
and cost reduction plans are on course through generating and applying
free cash flow towards debt reduction, re-establishing cushion
in key leverage and coverage metrics, maintaining sufficient committed
backstop agreements, and dialing-back on other transactions
and shareholder return initiatives while Beckman Coulter is being integrated
will be important developments affecting future rating actions.
Downward pressure on the ratings could develop should the company's
leverage persist above 2.5 times or adverse trends in revenues
or margins are experienced and result in EBITA/interest coverage below
7 times for a protracted period. In addition, a decline in
the combined organization's cash flow characteristics or liquidity
profile could result in weaker ratings. A stable or positive outlook
could emerge should Danaher's debt/EBITDA demonstrate it is on course
to quickly fall below 2.25 times, integration and cost synergy
plans are making positive contributions to earnings such that EBITA/interest
coverage is progressing to be materially and sustainably above 7 times.
Moody's understanding of reporting requirements in Beckman Coulter's
note indentures include the possibility that financial statements on the
obligor may not be mandated post a prospective merger with Danaher as
Beckman Coulter would no longer be an Exchange Act reporting entity.
Approximately $758 mm of Beckman Coulter notes could continue following
conclusion of the transaction. Unless these notes became guaranteed
or legally assumed by Danaher, the potential absence of adequate
financial information to monitor their risk characteristics could lead
to a withdrawal of their ratings.
The principal methodology used in rating Danaher Corporation was Global
Manufacturing Industry published in December 2010.
Danaher Corporation, based in Washington, DC, is a diversified
manufacturing company with interests in professional instrumentation,
medical and industrial technologies. Revenues in 2010 were approximately
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's confirms Danaher's A2/Prime-1 ratings; outlook negative
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