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Fitch Downgrades Thermo Fisher's Issuer Default Rating

NEW YORK (GenomeWeb News) – Fitch Ratings today downgraded its long-term issuer default rating on Thermo Fisher Scientific to 'BBB' from 'BBB+' and assigned a 'BBB' rating to Thermo Fisher's proposed senior notes, which have yet to be priced.

Thermo Fisher said earlier in the day that it would issue the senior notes to help pay for its proposed $13.6 billion acquisition of Life Technologies. The deal, which as announced in April, recently received European Commission approval and is expected to be completed in early 2014.

In addition to taking on debt through the notes offering, Thermo Fisher expects to assume roughly $2 billion in debt at the close of the acquisition.

Fitch said the downgrade is the result of Thermo Fisher adding about $10.8 billion of debt to its balance sheet and driving pro forma leverage (total debt to EBITDA) to almost 4.5x as of the close of the transaction. The firm would need to lower that leverage to 3.0x by the end of 2015 to regain the 'BBB' rating. Fitch said that it expects Thermo Fisher to produce adequate free cash flow to accomplish this level of debt reduction, though it will require the company to refrain from other asset purchases and share repurchases in 2014-2015.

Fitch forecasts EBITDA of $4.6 billion for Thermo Fisher in 2015 versus a pro forma level of $4 billion, which implies that the firm will need to use $4.2 billion of cash to pay down debt to meet the leverage reduction goal. It also projects annual free cash flow generation of $2.6 billion for the combined firm in 2015.

In addition to lowering the IDR, Fitch said Thermo Fisher's rating outlook is Negative.

It also affirmed its long-term IDR and senior notes rating of 'BBB' for Life Tech.