(The following statement was released by the rating agency)
Fitch Ratings-Austin-May 21: Boston Scientific Corp.’s (BSX) announced offerings of both common and preferred stock will provide additional liquidity as the company experiences near-term operational pressures from the coronavirus pandemic, according to Fitch Ratings. Proceeds from the issuance are expected to be used for debt reduction and general corporate purposes, and the transaction is consistent with BSX’s Long-Term Issuer Default Rating of ‘BBB’/Stable Outlook.
Fitch expects the common and preferred stock offerings will generate a minimum of $1.5 billion in proceeds before fees. Fitch expects to apply 100% equity credit to the mandatory convertible preferred stock. BSX stated that $750 million of proceeds will be used to reduce outstanding term loans, and the remaining proceeds will be used for general corporate purposes, which may include further debt reduction and funding for acquisitions or investments. Further reduction in debt would be a positive for the credit profile; Fitch considers debt/EBITDA maintained between 2.5x-3.0x as consistent with the ‘BBB’ IDR.
Fitch expects demand for certain of BSX’s products will be dampened in the near-term as volumes of elective surgeries experience a slow recovery following the peak of the pandemic-related business disruption. BSX’s emergent and semi-emergent related medical devices will provide revenue stability as more elective-type procedure demand will return on a regional basis. Temporary cost reduction efforts are assumed to not fully offset the impact of lower demand on a largely fixed cost structure, resulting in near-term EBITDA margin compression.
Bolstered liquidity from the stock issuances and management of capital deployment will help to preserve liquidity and reduce short-term debt over the next year. Fitch also expects relatively strong FCF for 2020, even amid operating pressures from the coronavirus pandemic. Gross debt/EBITDA is expected to peak above 3.0x at the end of 2020 but to decline fairly rapidly in 2021 due to recovery of EBITDA.
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