S&P Cuts Becton Dickinson (BDX) to 'BBB+'; Cites Financing Plans, Increased Debt Leverage

Standard & Poor's Ratings Services lowered its long-term corporate rating on Becton Dickinson & Co. (NYSE: BDX) to 'BBB+' from 'A' and the short-term commercial paper rating to 'A-2' from 'A-1'. The outlook is stable. We also lowered our issue-level rating on Becton's unsecured debt to 'BBB+' from 'A'. We removed the ratings from CreditWatch, where we placed them with negative implications on Oct. 6, 2014.

At the same time, we assigned a 'BBB+' issue-level rating to Becton Dickinson's senior unsecured notes offering, to be issued in several tranches.

"The ratings and stable outlook reflect our view that Becton Dickinson's expected acquisition of CareFusion is complementary, and that the combined businesses further support the company's "strong" business risk profile," said credit analyst Arthur Wong. "However, per the announced financing plans, pro forma net adjusted debt leverage approaches 3x and funds from operations (FFO) to total debt falls to under 30%--levels that are more consistent with an "intermediate" financial risk assessment."

Our stable outlook on Becton Dickinson reflects our expectation that the company will steadily strengthen its "intermediate" financial risk profile as it utilizes its ample free cash flows from the combined operations to deleverage.

Downside scenario

We believe a combination of revenue and margin declines that would drive leverage to more than 3x in the longer term would lead to a potential downgrade. Alternatively, we could lower the rating if Becton Dickinson issues a material amount of additional debt to fund further acquisitions.

Upside scenario

We could raise our ratings on Becton Dickinson ifthe company's operating performance trends remain stable and it continues to generate solid free cash flows that would enable it to deleverage and its financial metrics strengthen. This would include leverage dropping to the 2x level and FFO to adjusted debt climbing to above 30%.

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