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Fitch Affirms Bio-Rad Debt Rating

NEW YORK (GenomeWeb) – Fitch Ratings yesterday affirmed Bio-Rad's debt ratings, including its issuer default rating of BBB-, citing the company's historically low leverage and its low debt load, which provides a cushion against higher expenses associated with internal projects. 

Fitch also said that Bio-Rad's rating outlook is stable.

According to the ratings firm, Bio-Rad has long taken a conservative approach to managing its balance sheet, "favoring internal investment and select bolt-on acquisitions while foregoing shareholder-friendly activities." This has consistently yielded gross debt leverage below 2.5 times its equity, even as its EBITDA has been pressured by increasing expenses on internal projects and the incremental costs of acquisitions.

With Bio-Rad's repayment of subordinated debt in 2013, the company has kept its leverage below 1.5 times debt to EBITDA, resulting in a "significant cushion" for it to continue rolling out its long-term enterprise resource planning (ERP) system, as well as acquiring external development projects, Fitch stated. 

Fitch noted that Bio-Rad's Life Sciences segment, which accounts for about one-third of its revenue, has been growing faster than its Clinical Diagnostics segment, which contributes two-thirds of revenue, and said that it expects this trend to continue over the next three years.  

"As Life Sciences historically generates lower margins than diagnostics, the shift in product mix will also challenge margin expansion," it said.

Meanwhile, as operating costs increase amid the ongoing installation of Bio-Rad's corporate-wide ERP system, Fitch said the company's EBITDA margins will continue to approximate recent levels between 14 and 15 percent over the next three years.

Still, Bio-Rad had cash and short-term investments totaling $866 million as of Sept. 30, which exceeds its outstanding debt of $438 million, which consists primarily of $425 million of senior unsecured notes due 2020.

Roughly 53 percent of Bio-Rad's cash and securities balance resides in the US and can sustain operations and long-term projects given no commitment to share repurchasing or dividend initiation, Fitch stated. Further, the company has full availability under a $200 million senior unsecured revolving credit facility.

In addition to maintaining Bio-Rad's issuer default rating, Fitch affirmed the company's senior unsecured notes and senior unsecured back facility ratings at BBB-.

It said that upgrading the ratings would require the return of Bio-Rad's EBITDA margins to historical levels in the high teens on cost-savings capture, successful uptake of newly introduced products, and benefits from completing the ERP system.