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Rating Action:

Moody's lowers sr unsecured rating of Thermo Fisher Scientific to Baa2 from Baa1; ratings of Fisher Scientific International upgraded

15 Nov 2006
Moody's lowers sr unsecured rating of Thermo Fisher Scientific to Baa2 from Baa1; ratings of Fisher Scientific International upgraded

Approximately $2.3 billion of affected debt

New York, November 15, 2006 -- Moody's Investors Service ("Moody's") concludes the rating review for possible downgrade initiated on May 8, 2006 for Thermo Electron Corporation ("Thermo"), which is the surviving entity whose name has changed to Thermo Fisher Scientific Inc. ("Thermo Fisher"), as a result of the announcement that the merger between it and Fisher Scientific International Inc. ("Fisher") has been finalized. The ratings for Thermo have been downgraded and concurrently the ratings for Fisher Scientific International Inc. were upgraded. The companies combined in a tax-free, stock-for-stock transaction following its recently received anti-trust clearance which completed the merger.

The Baa2 senior unsecured debt rating for the combined entity, Thermo Fisher, reflects a capital structure, financial leverage and cash flow coverage of debt indicative of an investment grade issuer. Moody's expects that Thermo Fisher will yield a range in operating cash flow to adjusted debt of 27% to 31% with adjusted free cash flow to adjusted debt of 19% to 23% in 2006. Moody's also expects that the company will pay down debt over the same time period, from approximately $3 billion pro-forma as of December 31, 2005, to $2.6 billion and $2.3 billion at the end of 2006 and 2007, respectively.

Moody's believes that the merger between the two companies will offer the following benefits: greater scale and a broad portfolio of products and services; the ability to offer an end to end solution for laboratory customers, including equipment, software, reagents, consumables and services; and a more diverse geographic, product and customer mix. Moody's also expects that the combination could result in cost synergies and revenue synergies of approximately $150 million and $50 million, respectively, over the next few years. Moody's also views the two companies as highly complimentary.

Fisher has a strong supply chain management with distribution capabilities, multiple sales channels, as well as significant sales and marketing resources. Thermo, on the other hand, has strong production innovation, intellectual property, research and development, as well as a solid global manufacturing footprint and expertise. Thermo has also been quite successful in penetrating Asia and other emerging markets, offering potentially greater access for Fisher.

Moody's believes that the unsecured senior debt of Thermo Fisher will be structurally subordinated to the current debt at Fisher, as well as the $1 billion senior unsecured guaranteed credit facility (not being rated by Moody's) for the combined entity. Moody's assessment reflects the fact that the proposed credit facility should benefit from a guarantee from Fisher while the existing Fisher debt benefits from a co-obligation from the parent (Thermo Fisher). Moody's, however, did not view technical structural subordination as a major constraint to Thermo Fisher's current senior unsecured notes and bonds at the Baa2 senior unsecured rating for the combined company. Moody's notes that this subordination issue could become more material if the combined company's rating were at a lower level.

Moody's ratings do consider the major risks in combining both companies, specifically the integration of the two company's systems, operations and cultures. While Moody's notes that both companies have acquired other life science firms in the past few years, Moody's expects the combined company to focus on internal growth and cost synergies in the short-term prior to resuming to acquiring additional companies.

The following ratings of Thermo Fischer Scientific Inc. (formerly Thermo Electron Corporation) were downgraded:

$150 million (currently $128.7 million outstanding) senior unsecured notes, due 2008, downgraded to Baa2 from Baa1

$250 million (face value) 5% Senior Global Notes, due 2015, downgraded to Baa2 from Baa1

$125 million (currently $77.2 million outstanding) convertible subordinated debentures due 2007, downgraded to Ba1 from Baa3

The following ratings were withdrawn for Thermo Fischer Scientific Inc. (formerly Thermo Electron Corporation):

Senior Unsecured Shelf Rating, rated (P) Baa1

Subordinated Shelf Rating, rated (P) Baa2

The following ratings of Fisher Scientific International, Inc. were upgraded:

$300 million 2.50% senior unsecured convertible notes, due 2023, upgraded to Baa2 from Ba1

$330 million 3.25% senior subordinated convertible notes due 2024, upgraded to Baa3 from Ba2

$300 million 6.75% senior subordinated notes, due 2014, upgraded to Baa3 from Ba2

$500 million 6 1/8% senior subordinated notes, due 2015, upgraded to Baa3 from Ba2

The following ratings of Fisher Scientific International, Inc. were withdrawn:

Corporate Family Rating

$500 million Senior Secured Guaranteed Revolver due 2009

$250 million Senior Secured Guaranteed US Dollar Term Loan A due 2009

The following ratings of Apogent Technologies, Inc. (a wholly-owned subsidiary of Fisher) were upgraded:

$345 million floating rate senior convertible contingent notes (CODES) due 2033 upgraded to Baa2 from Ba1

The ratings outlook is stable.

Please refer to Moodys.com for Moody's credit opinion on Thermo Fisher Scientific Inc. and related entities.

Thermo Fisher Scientific Inc., based in Waltham, Massachusetts, with annual sales of more than $9 billion, serves over 350,000 customers within pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions and government agencies, as well as environmental and industrial process control settings. Thermo Scientific offers customers a complete range of high-end analytical instruments as well as laboratory equipment, software, services, consumables and reagents to enable integrated laboratory workflow solutions. Fisher Scientific provides a complete portfolio of laboratory equipment, chemicals, supplies and services used in healthcare, scientific research, safety and education.

New York
Patrick Finnegan
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Paul D. Bienstock
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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