Boston Scientific Corp. (NYSE:BSX) announced that it will explore an initial public offering (IPO) of roughly 20% of its Endosurgery business. Net proceeds from the potential offering may exceed $1.0 billion and are expected to be used for debt reduction. Fitch views the proposal as a positive development and supportive of BSX's 'BBB' rating. In addition to debt reduction, the proposed transaction will also enable BSX to maintain a reasonably diversified business model, of which Endosurgery accounts for approximately 16% of total sales.
It is anticipated that the Endosurgery business will trade and operate as a separate legal entity, but it will majority-owned by BSX. As such, the financial results of Endosurgery will be consolidated into BSX financial reports. As the exploratory process will likely take some time, Fitch will monitor the company's progress on the proposed IPO.
Endosurgery generates approximately $1.4 billion in sales with operating margins ranging from 20% to 25%. The business is generally comprised of Oncology, Urology & Gynecology and Endoscopy. Product concentration within Endosurgery is minimal.
BSX generated roughly $1.5 billion in Free Cash Flow (Net Cash Flow From Operations Less Capital Expenditures) during the latest 12 months (LTM), ending Dec. 31, 2006. Interest coverage (EBITDA/Interest) was 4.5 times (X) and leverage (Total Debt/EBITDA) was 4.6X for LTM, ending Dec. 31, 2006. The firm has approximately $1.7 billion in cash/short-term investments and $8.9 billion in debt.
Fitch rates Boston Scientific as follows:
--Issuer Default Rating (IDR) 'BBB';
--Senior unsecured notes 'BBB';
--Unsecured bank credit facility 'BBB';
--Commercial paper 'F2'.
The Rating Outlook is Stable.
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.
