(The following statement was released by the rating agency)
NEW YORK, December 07 (Fitch) Fitch Ratings has assigned an 'F2'
Thermo Fisher Scientific Inc.'s (Thermo Fisher) new EUR1 billion
paper (CP) program.
There will be two issuers under the program, Thermo Fisher
I) B.V. and Thermo Fisher Scientific (IVGN) B.V. Each entity is
subsidiary of Thermo Fisher and neither entity conducts
other than its financing operations. Each of the two issuers
will be fully
guaranteed by Thermo Fisher.
Thermo Fisher's ratings apply to approximately USD18.9 billion
of debt at Oct.
1, 2016. A full list of ratings follows at the end of this
release. The Rating
Outlook is Stable.
Thermo Fisher's CP program, which also includes a USD 1.5
billion U.S. CP
facility, will have external liquidity back-up through a USD 2.5
capacity multi-currency revolving credit facility (RCF) that
expires in July
If the company borrows under the facility, it intends to leave
an amount undrawn
sufficient to cover outstanding CP, which totalled USD 820.5
million at Sept.
30, 2016. As of that date, there were no borrowings under the
although capacity was reduced by USD 67 million in letters of
Internal sources of liquidity back-up include annual FCF that
Fitch projects to
total approximately USD3 billion beginning in 2017, as well as
of around USD 600 million of unrestricted cash on hand (net of
of USD1.4 billion in October 2016) at Oct. 1, 2016.
KEY RATING DRIVERS
--Fitch calculates pro forma gross leverage of around 3.5x
following the recent
acquisition of FEI Company for USD 4.2 billion in cash. Fitch
leverage to return to roughly 3x by the end of 2017, a level
that we view as
consistent with the 'BBB' rating.
--Flexibility at Thermo Fisher's current 'BBB' rating is limited
de-levering plan is complete. This should be achievable if
near-term targets are
bolt-on acquisitions that augment the company's product
transactions during this timeframe would likely require a
component of equity
financing to maintain the current rating category.
--Fitch views the possibility of aggressive capital management,
operating risk, as Thermo Fisher's key credit risk. Capital
acquisitions and shareholder payments have occasionally
contributed to higher
debt levels and deterioration of credit metrics, reducing
in the aftermath of leveraging transactions.
--Thermo Fisher's diversification across customer markets and
helps to mitigate the impact of cyclical downturns or secular
headwinds to sales
or profitability in any one of the company's end markets.
--Thermo Fisher's ample FCF, which could exceed USD3 billion in
2017, should be
sufficient to repay debt issued to finance bolt-on acquisitions,
as well as to
fund share repurchases of at least USD1 billion in 2016.
Fitch's key assumptions within the rating case for Thermo Fisher
--Thermo Fisher's gross debt leverage rises to between 3.5x-3.6x
by the end of
2016 but returns closer to 3.0x by year-end 2017, benefitting
repayment and EBITDA growth.
--Revenue growth of about 3%-4% over the forecast period. This
general expectations for growth in the life sciences sector.
headwinds in developed industrial markets will be offset by
stronger growth in
emerging markets and biopharmaceutical end markets.
--The operating EBITDA margin rises slightly through the end of
2018 due to some
continued cost benefits from the integration of Life Tech, as
well as a stable
--Cash from operations is more than sufficient to fund a
dividend, greater than USD 4 billion of bolt-on acquisitions and
billion of share repurchases over the next three years.
--Annual FCF exceeds USD3 billion throughout the forecast
Thermo Fisher's favorable business profile, with significant
end-market diversification and improved product mix following
the Life Tech
acquisition all support the ratings. Therefore, rating actions
are more likely
to be triggered by capital deployment decisions than by an
Maintenance of the 'BBB' Issuer Default Rating considers Fitch's
expectation that Thermo Fisher will be an active acquirer going
maintaining run-rate gross debt/EBITDA of between 2.8x-3.2x in
Fitch recognizes that gross leverage may occasionally exceed
this range in the
immediate aftermath of leveraging transactions. If Thermo Fisher
complete a leveraging transaction that cast doubt on its ability
leverage to roughly 3x within the following 18-24 months, it
could result in a
A near-term positive rating action is not anticipated, since it
would require a
commitment from the company to maintain leverage below 2.5x.
COMMITMENT TO DEBT REDUCTION FOLLOWING ACQUISITIONS
In assessing Thermo Fisher's commitment to maintaining a
consistent with solid investment-grade ratings, Fitch strongly
successful execution of its de-levering plan following its
acquisition of Life
Technologies Corp. (Life Tech) for USD16.8 billion in 2014.
Despite funding a high level of business development activities
and returns to
shareholders, Thermo Fisher has a generally strong track record
gross leverage within a publicly stated target range of
2.5x-3.0x over most
LIMITED FLEXIBILITY AT 'BBB' RATING
Flexibility at Thermo Fisher's current 'BBB' rating is limited
de-levering plan is complete. This should be achievable if most
moderately-sized bolt-on acquisitions that augment the company's
portfolio. Larger transactions during this timeframe would
require a component
of equity financing in order to maintain the company's credit
metrics at levels
commensurate with the current rating category.
Thermo Fisher's solid financial flexibility and strong liquidity
is an important
factor supporting the investment-grade credit profile. At Oct.
1, 2016, the
company's sources of liquidity included USD2 billion of cash on
USD600 million pro forma for USD1.4 billion of debt repayment in
and USD2.4 billion of capacity under its USD2.5 billion RCF. As
noted above, the
RCF is back-up for the CP program and if the revolver is drawn
intends to leave an available balance at least equal to the
amount of CP
Cash generation has historically been strong and consistent.
that Thermo Fisher could produce USD3 billion or more in FCF
annually for the
next several years. The debt maturity schedule of the company's
senior notes is
FULL LIST OF RATING ACTIONS
Fitch assigns the following rating:
--EUR1 billion commercial paper program at 'F2.'
Fitch currently rates Thermo Fisher as follows:
Thermo Fisher Scientific Inc.
--Long-Term IDR and senior notes 'BBB';
--Bank revolving credit facility 'BBB';
--Short-Term IDR 'F2';
--Commercial paper 'F2'.
Life Technologies Corp.
--Long-Term IDR and senior notes 'BBB'.
The Rating Outlook is Stable.
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Megan Neuburger, CFA
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908
Date of relevant rating committee: March 1, 2016
Additional information is available on www.fitchratings.com
Summary of Financial Statement Adjustments - Financial statement
that depart materially from those contained in the published
statements of the relevant rated entity or obligor are disclosed
--Historical and projected EBITDA is adjusted to add back
Corporate Rating Methodology - Including Short-Term Ratings and
Subsidiary Linkage - Effective from 17 August 2015 to 27
September 2016 (pub. 17
Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)
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