12.12.2012 19:14
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Biomet, Inc. -- Moody's says no change to Biomet's ratings (B2 CFR) with add-on Extended Term Loan B

Outlook stable

New York, December 12, 2012 -- Moody's Investors Service said that there is no change to Biomet, Inc.'s existing ratings including its B2 Corporate Family Rating and its B1 secured term loan ratings following the launch of a $250 million add-on to its Extended Term Loan B, maturing in July 2017. Proceeds will be used to repay a portion of a previous Term Loan, maturing in March 2015. The rating outlook remains stable.

Ratings unchanged: Biomet, Inc.Corporate Family Rating at B2

Probability of Default Rating at B2

Secured term loans at B1 (LGD 3, 35%)

Senior unsecured notes at B3 (LGD 4, 66%)

Senior subordinated notes at Caa1 (LGD 6, 93%)

Speculative Grade Liquidity Rating at SGL-2

RATINGS RATIONALE

This transaction represents a refinancing of existing debt and therefore does not affect leverage. Including savings from re-financings in July, Biomet's annual cash interest expense is expected to decline by about 15%.

"Biomet's leverage will remain high, especially if it separates its dental business, but we expect the company to be able to deleverage as it benefits from new product launches and trauma products acquired from J&J," said Diana Lee, a Moody's Senior Credit Officer.

Biomet's B2 Corporate Family Rating largely reflects its very high leverage and overall weak financial strength ratios, which represent key credit risks. However, the rating also reflects the company's relatively large size compared to other B2 companies and opportunities associated with favorable demographics. Despite historical stability, Moody's expects the sector to see ongoing volume and pricing pressure because of the weak economy, as well as hospital cost savings initiatives and high levels of competition. The reconstructive market will continue to evolve to one where product innovation is more critical. Thus Moody's anticipates higher R&D spending and potentially greater shifts in market share in certain product lines over time.

If the company does separate its 3i dental implant business, which accounts for about 9% of revenues and would likely result in higher leverage and even weaker credit metrics, Moody's does not expect an effect on ratings. Biomet should benefit from new product launches and the recent acquisition of Johnson & Johnson's (Aaa stable) Depuy trauma business, and Moody's expects that leverage would gradually decline.

The stable outlook reflects Moody's expectation that, although leverage remains very high and reconstructive use rates and pricing pressures continue, top-line growth rates will remain at least at market levels, supported by new product launches. A large debt-financed transaction, a recall action or material loss in market share that results in higher leverage or declining cash flow such that EBITA/interest approaches 1.0 time or debt/EBITDA exceeds 7.0 times, could result in a downgrade. If the company is able to demonstrate its ability to sustain at or above-market growth rates in core hips and knees and continue deleveraging such that debt/EBITDA and FCF/debt approach 5.0 times and 5%, respectively, and appear sustainable, the ratings could be upgraded.

The SGL-2 rating reflects Moody's view that Biomet's liquidity will be good over the next year. Cash balances are adequate and free cash flow will remain modest, but the company should generally have sufficient internal cash to support operations. In addition, Moody's expects Biomet to have access to ample external facilities with limited financial covenants. However, substantially all of the company's assets are pledged to bank lenders.

Moody's notes that the proposed transactions do not substantially change the capital structure of the company. However, the B3 senior notes currently benefit from the presence of substantial junior capital in the form of subordinated notes. If the amount of junior subordinated notes decreases materially or if the amount of secured debt, which is ahead of the senior notes increases, the B3 rating on the senior notes could be lowered to Caa1 even in the absence of a change in the CFR.

The principal methodology used in rating Biomet, Inc. was the Global Medical Product and Device Industry Methodology published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the US, Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Biomet, Inc., (Biomet) headquartered in Warsaw, Indiana, is a global manufacturer of orthopedic products and is among the leaders in the US reconstructive market. A private equity consortium, consisting of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and TPG, acquired Biomet for approximately $11.6 billion in July 2007.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Diana Lee VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Peter H. Abdill, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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