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Fitch Affirms BBB Rating for Quest

NEW YORK (GenomeWeb) – Fitch Ratings today affirmed Quest Diagnostics' ratings at BBB with a stable ratings outlook. 

The rating action applies to about $3.86 billion of debt. 

Fitch noted Quest's leading position in a fragmented and competitive US clinical laboratory market, saying its scale "affords the opportunity for comparatively efficient operations and supplies sourcing, and the ability to drive associated margin improvement following" merger and acquisition deals. 

Fitch further noted Quest's operational improvement, which resulted in positive organic growth in the fourth quarter of 2014, the first such quarter since 2012, and said that it anticipates Quest to continue posting modest organic growth in 2015. 

However, Quest's debt leverage is elevated relative to its BBB rating and exceeds management's long-term target of 2x-2.25x, Fitch said. After 2015, deleveraging will likely occur from earnings before interest, taxes, depreciation, and amortization "as the firm will now have limited opportunities for debt repayment," Fitch said in a statement. 

Lastly, the ratings firm said that Quest's management has shown that it will use discretionary cash for M&A and shareholder-friendly payments in the next few years. 

Quest recently formed a joint venture with Quintiles. While Fitch said that it views the deal favorably, it does not expect it to have a meaningful effect on Quest's financial results in the near term, though over the mid- to longer-term, the JV may present "good growth opportunities."

Fitch affirmed its BBB rating for Quest's long-term issuer default rating; its senior unsecured bank facility; and senior unsecured notes.

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