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Thermo Fisher Senior Notes Offering Rated BBB by Fitch

NEW YORK (GenomeWeb) – Fitch Ratings said today that it has granted a BBB rating to Thermo Fisher Scientific's seven-year senior notes offering with a Stable rating outlook.

The rating agency said it expects the company to use the proceeds of the issue to redeem the outstanding $1 billion principal amount of its 2.25 percent senior notes due August 15. The ratings apply to $12.5 billion of debt as of Dec. 31, 2015.

Thermo Fisher has demonstrated "solid and consistently paced improvement in credit metrics" since its acquisition of Life Technologies, Fitch said, and its year-end 2015 leverage of 3.0x is consistent with Fitch's target for the BBB rating. The agency also counted the smooth integration of Life Tech as a plus.

Fitch also said it views the possibility of aggressive capital management, and not operating risk, as Thermo Fisher's key credit risk. "Capital deployment for acquisitions and shareholder payments has occasionally contributed to higher debt levels and deterioration of credit metrics, reducing financial flexibility in the aftermath of leveraging transactions," the agency added.

Further, Fitch took a positive view of the company's diversification across markets and product categories, which could help to mitigate the impact of cyclical downturns or headwinds on sales or profitability.

The agency also said it made some assumptions leading to its rating — namely that Thermo Fisher's gross debt leverage drops to 2.8x by the end of 2016 and 2.5x by year-end 2018; that its revenue grows  3 percent to 4 percent over the same period, reflecting Fitch's general expectations for growth in the life sciences sector; and that the company can fund a slightly increasing dividend and more than $4 billion of bolt-on acquisitions and over $4 billion of share repurchases over the next three years.

"Thermo Fisher's favorable business profile, with significant scale, good end-market diversification, and improved product mix following the Life Tech acquisition, supports the ratings," the agency said. "Therefore, rating actions are more likely to be triggered by capital deployment decisions than by an operational stress scenario."

Fitch expects that Thermo Fisher will continue to be an active acquirer, reduce its debt on schedule, continue making progress on the integration of Life Tech, and maintain strong liquidity.

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