NEW YORK (GenomeWeb News) – Fitch Ratings has downgraded Thermo Fisher Scientific's long-term Issuer Default Rating and senior unsecured rating to BBB+.
The ratings firm made the downgrade Monday evening following Thermo Fisher's announced plan to buy One Lambda for $925 million. Moody's Investors Service also downgraded Thermo Fisher's senior unsecured rating and all rated senior unsecured notes on Monday.
Fitch is downgrading Thermo Fisher's IDR and senior unsecured rating from A-. The F2 short-term IDR and commercial paper rating were reaffirmed. The ratings apply to about $6.6 billion of debt outstanding as of March 31, 2012, Fitch said, adding the rating outlook is Stable.
As a result of Thermo Fisher's acquisition activity during the past year including the proposed One Lambda deal, Fitch said it does not believe the company's leverage, measured by total debt-to-EBITDA (or earnings before interest, taxes, depreciation, and amortization) will not be maintained at or below 2.0x.
One Lambda is the third sizeable purchase by Thermo Fisher during the past year, following the acquisition of Phadia and Dionex. Those two deals resulted in a cumulative $4.8 billion in debt added to Thermo Fisher's capital structure that drove latest 12-month total debt-to-EBITDA to 2.6x as of March 31, 2012 compared to 1.0x before the deals, Fitch said.
Fitch also noted the expanded repurchase program for 2012 calling for an additional $500 million in share buybacks, bringing total share repurchases to about $900 million for this year. The repurchase program along with a new quarterly dividend payment policy "place added pressure on the balance sheet, especially if incremental debt funds the repurchasing activities," Fitch said in a statement.
It added that Thermo Fisher's liquidity remains strong and expects EBITDA growth for the company in 2012-2013, both organically and from recent acquisitions, to produce discretionary free cash flow of about $1.4 billion, on par with 2011.
In morning trading on the Nasdaq, shares of Thermo Fisher were down a fraction of 1 percent at $51.51.