Fitch Rates Baxter's Proposed Debt Offering 'A'; Outlook Stable

2008-05-19 23:44:47 -

- Fitch has assigned an 'A' rating to Baxter International Inc's. (Baxter) proposed debt offering of 10-year senior unsecured notes. Baxter intends to use the net proceeds from the sale for general corporate purposes, which may include the repayment of outstanding indebtedness and certain net investment hedges.

The rating reflects Baxter's continued improvement in its operating performance and its strong credit metrics. The company is generating profitable growth in all three divisions, and advancements in the pipeline support the expectation of further broad-based growth, especially in Bioscience and Medication Delivery.

Despite the operational improvements, select manufacturing concerns need to be addressed. While Fitch believes Baxter is close to resolving all of the COLLEAGUE pump issues, a number of serious adverse events, have been associated with patients who received the company's Heparin product, which Baxter recalled. Heparin is a relatively small product, and it has multiple manufacturers. Nevertheless, the issue presents reputational risk, as well as potential liability claims. Fitch believes Baxter will be able to manage through is issue.

Fitch's rating reflects the expectation that free cash flow (FCF) will likely be used for share repurchases and acquisitions, for which Baxter has some flexibility within its rating category. Baxter's board of directors recently approved and additional $2 billion share repurchase program, and Fitch believes. Fitch believes the board will continue to increase the dividend in order to remain competitive with its peers.

Baxter's EBITDA margin for the last twelve months (LTM) ended March 31, 2008 was 26.2% vs. 23.3% for FYE: 2006. For LTM ended March 31, 2008, Baxter's EBITDA/gross interest was 20.8 times (x); total debt/EBITDA was 0.96x; FFO/adjusted leverage was 1.30x; and FCF % of adjusted debt was 29.0x.

During the same period, funds from operations was approximately $3 billion. Total debt at March 31, 2008 was approximately $2.9 billion, comprised virtually of all long-term senior unsecured notes and bank loans. There was no commercial paper outstanding at March 31, 2008, and cash balances were $1.7 billion. Baxter has full availability on its $1.5 billion credit facility maturing in 2011 and its $450 million credit facility maturing in 2012. The company has approximately $1.1 billion of debt maturing through 2012.

Fitch rates Baxter International Inc. as follows with a Stable Outlook:

--Issuer Default Rating (IDR) 'A';

--Senior unsecured notes 'A';

--Bank credit facility 'A';

--Commercial paper 'F1.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

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