New York, October 25, 2012 -- Moody's Investors Service assigned an A3 rating to C.R. Bard, Inc.'s (Bard's) new $500 million senior unsecured notes, which will be issued under an existing shelf registration. Bard's existing A3 and Prime-2 ratings remain unchanged. Moody's expects proceeds to be used to refinance outstanding commercial paper and fund the acquisition of Neomend, a manufacturer of surgical sealants, for $140 million plus an additional $25 million based on revenue-based milestones through 2016.
Rating assigned: C.R. Bard, Inc.$500 million senior unsecured notes at A3
C.R. Bard, Inc.
Existing senior unsecured notes at A3
Shelf rating at (P)A3 Short-term rating at Prime-2 RATINGS RATIONALE "We believe that this transaction will involve a moderate level of incremental debt, which can be absorbed at the current rating level," said Diana Lee, a Moody's Senior Credit Officer.
In general, Moody's expects Bard to be able to fund both moderate-sized acquisitions and share buybacks with internally generated cash. However, Bard's debt levels could continue to rise, in part because US acquisition opportunities may exceed US cash flow -- especially as more of its profits are generated outside the US. Bard does not currently have as large a presence in emerging markets as some of its peers and therefore, Moody's views this as a growth opportunity for Bard. However, Moody's expects that incremental cash flows will support any additional borrowings. Legal developments related to Bard's vascular and stent graft patent infringement lawsuit against W.L. Gore & Associates have generally been favorable for Bard. The company will have additional financial flexibility if it sees a favorable settlement with Gore.
The A3 rating reflects Bard's strong market presence in a diverse group of hospital-based products as well as its moderate growth strategy, offset by its relatively small size compared to other "A" rated medical device companies. Because of Bard's size, Moody's expects the company to sustain ratios that are stronger than those typical for its rating category. Demand and pricing for hospital-based products will continue to be constrained, particularly in the US, but new product launches should help offset these headwinds.
The stable outlook reflects Moody's expectation that over the next 12-18 months, Bard will see, at a minimum, market growth rates in the low to mid-single digit range while generating significant free cash flow relative to debt. To help offset its small size, Moody's expects strong credit metrics to be sustained, including cash flow from operations to debt and free cash flow to debt between 40%-45% and 25%-30%, respectively.
If the company engages in debt-financed acquisitions or shareholder initiatives that are outside of Moody's expectations, and credit ratios weaken such that Moody's expects cash flow from operations to debt and free cash flow to debt to be sustained below 40% and 25%, respectively, the ratings could be downgraded. Given the company's relatively small size, a rating upgrade is not likely over the next 12 to 18 months. Over the longer term, however, ratings could be upgraded if the company becomes a larger player in the medical products arena, while continuing to demonstrate good diversification and strong credit metrics.
The principal methodology used in rating C.R. Bard was the Global Medical Product and Device Industry published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
C.R. Bard, Inc., headquartered in Murray Hill, New Jersey, is a leading manufacturer and marketer of primarily hospital-based health care products worldwide.
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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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