CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Baxter International Inc.'s (BAX) ratings as follows:
--Issuer Default Rating (IDR) at 'A';
--Short-term IDR at 'F1';
--Senior unsecured notes at 'A';
--Bank credit facility at 'A';
--Commercial paper (CP) at 'F1'.
The ratings apply to approximately $4 billion of outstanding debt, and the Rating Outlook is Stable.
The rating action is supported by BAX's relatively stable, aggregate operating performance in the face of general economic and selected product headwinds. A fairly diverse portfolio of products, many of which have a critical medical need, has supported the company's operational stability. Credit metrics have remained strong, as the company continues to employ financial discipline, resulting in leverage (total debt/operating EBITDA) staying in the range of 1.1 times (x) to 1.3x.
The key rating drivers for this credit are leverage measured as total debt-to-EBITDA and free cash flow. The 'A' leverage range for this credit is approximately 1.0x-1.5x, and material free cash flow generation is expected for this rating.
BAX is generating moderate organic growth in its three business segments: Bioscience, Medication Delivery and Renal. The trend has remained positive while BAX contends with switching its customers out of its Colleague Infusion Pumps and what Fitch believes was a temporary competitive strain in its Antibody Therapy business. Fitch also expects that continued progress in commercializing pipeline products will provide for longer-term growth and margin support. As such, Fitch expects 2011 free cash flow (cash flow from operations minus capital expenditures minus dividends) to range from $900 million to $1.1 billion.
Fitch expects that BAX will achieve its stated 2011 cash flow from operations forecast of $2.8 billion, which should be sufficient to fund approximately $1 billion of capital expenditures, roughly $700 million of dividends, an intended $150 million of pension contributions, targeted acquisitions and share repurchases. Fitch believes dividends will increase over time, and targeted acquisitions that strengthen or complement its current portfolio of products will continue. Fitch forecasts leverage during 2011 to range from 1.1x to 1.3x.
Numerous national governments across the world continue to pressure pricing, as they deal with increasing budget deficits, exacerbated by the challenging economic environment. While BAX is working through a few regulatory issues with the FDA, Fitch does not believe these issues will affect BAX's credit rating. BAX generates roughly 59% of its business internationally. Therefore, any adverse changes to tax policy towards international earnings could affect the company's cash flow. In addition, the company's relatively smaller exposure to the U.S. market helps to buffer some of the costs associated with the U.S. healthcare reform legislation passed in 2010.
Free cash flow for the latest 12 months (LTM) ended Dec. 31, 2010 was approximately $1.35 billion. At Dec. 31, 2010 cash on hand was $2.69 billion, and BAX had no borrowings on its $1.5 billion credit facility maturing in 2011 and full availability of its $435 million credit facility maturing in 2013. Total debt was roughly $4.39 billion. The company has approximately $168 million of long-term debt maturing in 2012, $306 million in 2013, $364 million in 2014 and $904 million in 2015.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
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