NOTE: On October 28, 2021, the press release was corrected as follows: In the first paragraph of the press release, the second sentence was changed to “Moody’s also affirmed the senior secured rating at Ba2.” Revised release follows.
New York, October 27, 2021 -- Moody's Investors Service ("Moody's") upgraded
the ratings of Owens & Minor, Inc., ("Owens &
Minor") including its Corporate Family Rating (CFR) to Ba3 from B1,
its Probability of Default Rating (PDR) to Ba3-PD from B1-PD,
and its senior unsecured notes' rating to B1 from B2. Moody's
also affirmed the senior secured rating at Ba2.
There is no change to the Speculative Grade Liquidity Rating of SGL-1,
signifying very good liquidity. The rating agency also changed
the outlook to stable from positive.
The upgrade of the CFR reflects Owens & Minor's improved business
profile mainly driven by strong operating performance and cash flow generation.
The upgrade is also supported by an improvement in profitability and a
reduction in leverage driven by earnings growth, with adjusted debt/EBITDA
of 2.1x for the twelve months ended June 30, 2021 (vs.
3.2x December 31, 2020). Owens & Minor has benefitted
from strong demand in the company's manufacturing business,
which produces personal protective equipment (PPE) used to prevent the
transmission of coronavirus and other infectious diseases. While
demand for PPE will recede when the pandemic ebbs, Moody's
expects solid business execution and robust contribution of the manufacturing
business, which has higher profit margins than the distribution
business.
In its stable outlook, Moody's expects financial leverage
will remain between 2.0x and 3.0x over the next 12 to 18
months. However, there will be some quarterly variability
in performance over the next few quarters depending on the trajectory
of the coronavirus pandemic.
Rating actions:
..Issuer: Owens & Minor, Inc.
.... Corporate Family Rating, upgraded
to Ba3 from B1
.... Probability of Default Rating,
upgraded to Ba3-PD from B1-PD
.... Senior Unsecured rating, upgraded
to B1 (LGD5) from B2 (LGD5)
Ratings affirmed:
..Issuer: Owens & Minor, Inc.
.... Senior Secured rating, at Ba2 (LGD3)
Outlook change:
Owens & Minor, Inc.
The rating outlook, previously positive, was changed to stable.
RATINGS RATIONALE
Owens & Minor's Ba3 CFR is supported by the company's track record
of delivering good revenue and earnings growth. It also reflects
low financial leverage with adjusted debt/EBITDA of 2.1 times in
the twelve months ended June 30, 2021. The rating is also
supported by Owens & Minor's leading position in the medical
and surgical supply distribution business supplemented by a manufacturing
business, which has higher profitability. Owens & Minor
focuses on single-use consumable products which have low levels
of technological obsolescence risk but are essential to the provision
of healthcare in a wide range of settings. Moody's expects
that Owens & Minor will maintain profitability and generate positive
free cash flow even when the pandemic-related tailwind ebbs.
The rating is constrained by Owen's & Minor's modest scale,
and low distribution margins reflecting a highly competitive industry.
Moody's expects that adjusted debt to EBITDA will continue to remain
in the 2.0x to 3.0x range over the next 12-18 months,
absent external growth.
The Speculative Grade Liquidity Rating of SGL-1 reflects the company's
very good liquidity, including ample headroom under its financial
covenants, positive free cash flow after required debt amortization
and access to external credit facilities. At June 30, 2021
, Owens & Minor had unrestricted cash of $45 million.
The company has no maturity until 2024. Liquidity is supported
by a $300 million revolving credit facility (unrated) that will
expire in March 2026.
The stable outlook reflects Moody's expectation that financial leverage
will remain between 2.0x and 3.0x over the next 12 to 18
months. However, there will be some quarterly variability
in performance over the next few quarters depending on the trajectory
of the coronavirus pandemic.
Social factors are material for Owens & Minor's credit profile.
Moody's expects Owens & Minor will be able to grow volumes over
the longer term, largely because of demographic trends including
the overall aging of the US population. However, near-term
demand could be adversely affected by the trajectory of the coronavirus
pandemic. In addition, while Owens & Minor is not exposed
to direct reimbursement risk, its customers, most of which
are acute care hospitals, face significant pressure from public
and private payors to lower the overall cost of healthcare. Pricing
pressure from payors will persist for the foreseeable future and in turn
will cause pricing pressure to persist for suppliers to hospitals.
With respect to governance, Moody's expects Owens & Minor
to operate with moderate financial leverage in line with the company's
public leverage target between 2x and 3x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if the company is able to increase its scale,
improves diversification while maintaining balanced financial policies.
Specifically, if adjusted debt/EBITDA is expected to be sustained
below 2.0x, Moody's could upgrade the ratings.
The ratings could be downgraded if operating performance deteriorates,
if the company pursues a large debt-funded acquisition, or
if liquidity deteriorates. Specifically, if adjusted debt/EBITDA
is sustained above 3.0x, Moody's could downgrade the ratings.
Owens & Minor, headquartered in Mechanicsville, VA,
is a nationwide provider of distribution and logistics services to the
healthcare industry. Owens & Minor operates two divisions:
Global Solutions (80% of 2020 revenue) that includes a comprehensive
portfolio of products and services to healthcare providers and manufacturers,
and Global Products (20% of 2020 revenue) that manufactures and
sources medical surgical products. In the twelve months to June
30, 2021 Owens & Minor had revenue of $9.4 billion.
The principal methodology used in these ratings was Distribution &
Supply Chain Services Industry published in June 2018 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121974.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
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am Main 60322, Germany, in accordance with Art.4 paragraph
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Jean-Yves Coupin
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Ola Hannoun-Costa
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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