CHICAGO--(Business Wire)--
Fitch Ratings has assigned a 'BBB+' rating to Quest Diagnostics, Inc. (Quest)
proposed public issuance of $750 million of 10-year, and 30-year senior
unsecured notes. Proceeds from the debt offering are expected to be used for
general corporate purposes, including acquisitions, and to partially pay down
outstanding long-term debt. Quest's credit ratings are as follows.
--Issuer Default Rating (IDR) 'BBB+';
--Senior unsecured debt rating 'BBB+';
--Bank loan rating 'BBB+';
The Rating Outlook is Stable.
The ratings reflect Quest's leadership in independent clinical testing
laboratories with an approximate 15% share of a highly fragmented clinical
diagnostic testing market. Clinical testing generates over 90% of the company's
total revenues. Additionally, Quest reduced leverage (total debt-to-EBITDA) to
1.8 times (x) for the latest 12-month (LTM) period ending Sept. 30, 2009 from a
high of 2.6x at the end of 2007, following a series of acquisitions in 2005 to
2007 including the $2 billion AmeriPath transaction. Some proceeds from the new
debt are expected to be used to reduce term loan borrowings due in 2011 as well
as to tender for senior unsecured debt maturing 2010 and 2011. The company
currently faces $1.57 billion of debt maturing through 2012, comprising
approximately $226 million in 2010, $780 million in 2011, and $560 million in
2012.
At the end of the third quarter, Quest had cash and equivalents of $247 million
and full capacity under a $750 million revolving credit facility due May 31,
2012. The credit facility contains two financial covenants: leverage (total
debt-to-EBITDA) of less than or equal to 3.25x, and interest coverage
(EBITDA-to-cash interest) greater than or equal to 3.5x. In addition, Quest
increased its receivables securitization facility during 2008 to $500 million
from $375 million. There were $100 million of borrowings at the end of the third
quarter after the company funded the $308 million NID legal settlement in April.
Free cash flow (FCF) generation is consistent and was $702.5 million for the LTM
period ending Sept. 30, 2009, including the NID legal settlement. Historical FCF
margins fall in the range of 9% to 10%, which Fitch expects to be maintained in
the long term, excluding this year. Operating cash flow will be negatively
affected in 2009 by the above-mentioned legal settlement and estimated
lower-than-historical sales growth; however, Quest anticipates generating $900
million of operating cash flow during the year.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Michael Zbinovec, +1-312-368-3164 (Chicago)
Lauren Coste, CFA, +1-312-606-2320 (Chicago)
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