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TEXT-Fitch cuts Thermo Fisher's IDR to 'BBB+'
July 16, 2012 / 9:24 PM / 5 years ago

TEXT-Fitch cuts Thermo Fisher's IDR to 'BBB+'

July 16 - Fitch Ratings has downgraded Thermo Fisher Scientific's 
long-term Issuer Default Rating (IDR) to 'BBB+' from 'A-', and senior unsecured
rating to 'BBB+' from 'A-'. Simultaneously, the 'F2' short-term IDR and
commercial paper rating have been affirmed. The ratings apply to about $6.6
billion of debt outstanding at March 31, 2012. The Rating Outlook is Stable.

Leverage Above Fitch's Expectations:
Fitch believes that leverage as measured by total debt-to-EBITDA will not be
maintained at or below 2.0x in light of the increased debt load resulting from
acquisition activity over the past year, including the proposed purchase of One
Lambda, and expected consummation of an expanded share repurchase program over
2012. Although periodic increases in debt leverage to fund acquisitions are
tolerable, Fitch sees leverage around 2.8x at the end of 2012 and over 2.0x
through 2014, levels commensurate with the current rating category.

Aggressive Capital Deployment Stresses Balance Sheet:
The acquisition of One Lambda for $925 million represents the third sizable
acquisition over the past 12 months, following the purchases of Phadia AB and
Dionex Corp. in 2011. Funding for the 2011 acquisitions resulted in a cumulative
$4.8 billion in debt added to the company's capital structure that drove latest
12 months (LTM) total debt-to-EBITDA to 2.6x at March 31, 2012 versus about 1.0x
before the transactions. Also announced today, the company's Board of Directors
approved an incremental share repurchase authorization of $500 million (expiring
at the end of 2012), which taken together with $400 million of its common stock
purchased so far this year, brings the total to around $900 million expected
this year. The expanding share purchase program and newly implemented dividend
place added pressure on the balance sheet, especially if incremental debt funds
the repurchasing activities.

Liquidity Remains Strong:
Fitch anticipates positive EBITDA growth for Thermo Fisher in 2012-2013, both
organically and from recent acquisitions, that will produce discretionary free
cash flow (FCF) of about $1.4 billion, on par with 2011. The level of
discretionary FCF remains steady despite the initiation of a dividend that will
consume $200 million on an annual run rate. Liquidity is also provided by
$953million in capacity (on March 31, 2012) of a $1 billion bank revolver
maturing in April 2017. A separate 364-day $500 million credit revolver acts as
incremental back-up to the company's $1 billion commercial paper program. Thermo
Fisher is easily compliant with the financial maintenance covenant found in its
bank credit facilities requiring leverage to be maintained below 3.5x. On March
31, 2012, the company had $788 million of cash on hand.

Debt Maturity Schedule is Manageable:
Thermo Fisher's long-term debt maturity schedule is well-spaced with the next
debt maturity occurring in December 2012 when $350 million of senior unsecured
notes mature. Fitch expects the company to pay down the nearing maturity with
cash. Other debt maturities through 2016 include $700 million of senior
unsecured notes in each of 2014 and 2015 and $900 million of senior unsecured
notes in 2016. Thermo Fisher also had $550 million of commercial paper
outstanding at March 31, 2012.

Ratings Triggers:
A downgrade or Negative Outlook from the 'BBB+' rating could result from total
debt-to-EBITDA sustained above 3.0x. Fitch believes that the company is
comfortable managing its balance sheet to a leverage target of about 2.5x, but
would be willing to increase debt to up to 3.5x to fund an acquisition. Positive
rating action, while unlikely at this time, could follow a return of leverage to
2.0x or below.

Additional information is available at ''. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology

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