Fitch Affirms Beckman Coulter's 'BBB' Ratings; Outlook Stable

2008-05-22 22:02:40 -

- Fitch Ratings has affirmed Beckman Coulter Inc.'s (Beckman Coulter) ratings as follows:

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

-- Bank loan 'BBB';

-- Senior unsecured debt 'BBB'.

The Rating Outlook is Stable. Approximately $989 million of debt as of the end of the first quarter of 2008 is affected by Fitch's action.

Beckman Coulter's rating is supported by certainty of revenues and cash flows derived from recurring revenues, specifically consumables, reagents and services, representing approximately 80% of total revenues and growing 12%-13%. Total revenue growth of 19.1%, 14.5% in constant currency, for the first quarter of 2008 far exceeded that of the in-vitro diagnostics market growth of 3%-5%. Strong instrument placements in the quarter further supports subsequent sustained revenue growth of higher-margin aftermarket sales. Additionally, a productive R&D program focused on developing high-margin specialty blood tests and new instrument platforms supports continued above-market performance.

Fitch acknowledges that compressed free cash flow generation will remain through the middle of 2010 as a result of the negative affect of shifting to mainly operating-type lease contracts from sales-type leasing that started in the middle of 2005. However, free cash flow in 2007 had exceeded Fitch's expectation due to lower capital spending. Free cash flow for the latest 12-month period at the end of the first quarter was $77.9 million. Fitch expects improving free cash flow generation and increasing annual dividends offset by moderating capital spending (as measured as a percentage of sales) after the end of the decade.

Beckman Coulter continues to be committed to dividend payout of 15%-20% of net income as well as a new share repurchase initiative to maintain a diluted share count of 65 million. Share repurchase activity may increase in the intermediate term as the company seeks to offset incremental diluted shares from convertible debt when the equity price exceeds the convertible price. Fitch anticipates that the company may aggressively repurchase shares in the absence of acquisition opportunities.

Current leverage, total debt-to-EBITDA, of 1.87 times (x) has eased from continued operational improvement since 2006, when Beckman Coulter increased the debt load to fund its acquisition strategy. Fitch is concerned that incremental debt will be used to fund share repurchases in the intermediate term; however, leverage is still expected to remain consistent with the current rating category.

The company's liquidity is provided by full capacity under a $300 million five-year revolving credit facility, expandable to $500 million in $50 million increments, that expires in January 2010. The revolver contains a maximum leverage ratio of 3.25x and minimum interest coverage of 3.5x. Additionally, Beckman Coulter initiated a $175 million receivables securitization program in October 2007. On March 31, 2008, the company also had $144.2 million of unused uncommitted short-term lines of credit outside the U.S. and $30.7 million within the U.S. for use by the company's subsidiaries.

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.

Fitch Ratings
Michael Zbinovec, +1-312-368-3164 (Chicago)
Lauren Coste, +1-312-606-2320 (Chicago)
Brian Bertsch, +1-212-908-0549
(Media Relations, New York)