S&P Affirms Corp. Ratng on Bill Barrett (BBG) Following Asset Sale Sep 19, 2014 12:32PM

Standard & Poor's Ratings Services affirmed its 'B+' corporate credit rating on Denver-based Bill Barrett (NYSE: BBG), following its agreement to sell assets in the Piceance and Powder River Basins for a total value of $757 million. The outlook is stable.

At the same time, we lowered our issue-level rating on the company's unsecured debt to 'B-' from 'B' and revised our recovery rating on the debt to '6' from '5'. The revised recovery rating on this debt reflects our expectation of negligible (0% to 10%) recovery in the event of a payment default.

"We are affirming the ratings on Bill Barrett Corp. following the company's announcement that it has agreed to sell natural-gas-focused properties in the Colorado Piceance Basin and oil-focused assets in the Wyoming Powder River Basin to multiple parties for total consideration of $757 million, said Carin Dehne-Kiley.

As a result of the asset sales, we are revising our assessment of Bill Barrett's business risk profile to "vulnerable" from "weak." We assess Bill Barrett's financial risk profile as "aggressive." The company expects to use a portion of the cash proceeds to pay down outstanding borrowings on its credit facility, currently about $280 million, with the remainder going to fund capital spending next year. We classify Bill Barrett's liquidity as "adequate," given that we expect sources of liquidity to exceed uses by 1.2x over the next 12 months.

The stable outlook reflects our view that Bill Barrett will continue to expand its oil production and reserves, while maintaining FFO to debt above 30% and debt to EBITDA below 3x.

We could lower our rating if we expect FFO to debt to fall below 30% for a sustained period, which would most likely occur if production did not ramp up as anticipated from the Niobrara, or if capital spending exceeded our estimates without corresponding production growth.

While we consider an upgrade unlikely over the next 12 months, we could consider raising the rating if Bill Barrett were able to meaningfully increase its size and scale, and increase its percentage of proved developed reserves, while maintaining appropriate leverage.

Auxilium Pharma (AUXL) CCR Raised to 'CCC+'' by S&P Sep 18, 2014 02:35PM

Standard & Poor's Ratings Services raised its corporate credit rating on Auxilium Pharmaceuticals Inc. (Nasdaq: AUXL) to 'CCC+' following the announced restructuring program and a $50 million add-on to its existing first-lien term loan.

At the same time, we raised our senior secured rating to 'B-' from 'CCC+'. The '2'recovery rating is unchanged and reflects our expectation for substantial (70%-90%) recovery in the event of payment default.

"The upgrade reflects our view that the near-term risk of a covenant breach has abated. Auxilium's credit agreement allows the company to add expected restructuring cost savings to EBITDA, enabling covenant compliance," said credit analyst Maryna Kandrukhin. "Still, the 'CCC+' rating on Auxilium primarily reflects our view that the company's capital structure is unsustainable. We believe continued free cash outflow, resulting from high contingent consideration payments, will constrain the company's ability to refinance its debt in 2017 to 2018."

Our stable outlook on Auxilium reflects our expectation that revenue will grow 15% in 2015 and that the company's cash balance, improved by the expected QLT merger and the $50 million add-on loan, will provide an ample liquidity cushion over the next year. This is despite our expectation of near-term cash flow deficits, mainly resulting from high contingent consideration payments.

Downside scenario

We could lower the rating if the company depletes cash faster than we currently estimate, or if the realized cost savings are significantly weaker than we project, increasing the likelihood of a covenant breach over the next 12 months.

Upside scenario

We could raise our rating if we become convinced that Auxilium can refinance its financial obligations in 2017 to 2018. In our view, stronger EBITDA margins, improved by restructuring efforts and stable revenue growth, would likely result in minimal/zero cash flow deficits, possibly signaling a sustainable capital structure.

PerkinElmer (PKI) IDR Affirmed at Fitch; Outlook Raised to Positive Sep 18, 2014 11:46AM

Fitch Ratings has affirmed PerkinElmer's (NYSE: PKI) Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook has been revised to Positive from Stable. A full list of PerkinElmer's ratings is provided at the end of this press release.

The rating action applies to approximately $858 million of consolidated debt outstanding as of June 30, 2014.


Steady Leverage Improvement
PerkinElmer steadily reduced gross debt leverage since the purchase of Caliper for $600 million in 2011. Through a combination of debt repayment and strong operational performance (EBITDA growth of more than 40%), total leverage has fallen to 2.0x for the latest 12 months (LTM) ending June 30, 2014 from 3.1x in 2011. Absent leveraging transactions, Fitch feels the present leverage level, which is commensurate with a 'BBB' rating, could be maintained primarily from solid operational performance as the company advances toward its target of adjusted operating margin of 20% in 2017.

Restructuring Savings Bolstering Margins
PerkinElmer is successfully executing upon its strategic focus toward margin expansion as evidenced by EBITDA margin increasing steadily to 19.2% for the LTM ending June 30, 2014 from 15.7% in 2011. Improvement resulted from restructuring operations with new programs announced almost quarterly, as well as product mix shift (higher margin consumables represent 58% of revenues, up from 55% last year). This year, the company hopes to raise adjusted operating margins by another 130 basis points.

In the first six months of 2014, PerkinElmer reported adjusted operating margin of 15.9% compared to 14.3% in the same time frame in 2013. During the same period, Fitch-calculated EBITDA margin of 17.5% in 2014 rose from 16.1% in 2013. Fitch sees EBITDA margin for the full year at a level similar to last year as cost savings shift to support new product launches. Fitch also expects margin to increase annually beyond 2014 from continued cost containment efforts coupled with improved mix as the company strives to grow the percentage of revenues derived from recurring sales. Maintenance of EBITDA margins approaching 20% would further support a one-notch upgrade.

Revenues Nearing Goal
PerkinElmer contends with tightened academia and government spending across the world, especially in Europe, with its diversified product portfolio spanning innovative instruments, software, testing reagents, and services. In addition, the company experienced some deferral of capital spending in China due to delayed government funding during the second quarter of the year. The company expects its overall offering to be resilient to the headwinds leading to mid-single digit organic growth in 2014, which Fitch sees as reasonable given new product introductions over the past few years. Organic sales growth was 5% and 2% in the first and second quarters of 2014, respectively.

Moreover, solid growth also arises from a healthy percentage of revenues derived from higher-growth recurring sales of reagents, consumables, and services, much of which are contractually bound. Fitch sees compound annually growth of around 4% through 2016 supported by continued demand for PerkinElmer's diversified portfolio, bolstered by new offerings across the Human Health and Environmental Health segments.

Return of Solid Free Cash Flow (FCF)
Steps taken over the past two years to fully fund the U.S. defined pension benefit plan and invest in the consolidation of operations have already started to benefit cash flows this year. FCF rose to $179.8 million margin for the LTM as of June 30, 2014, representing a FCF margin of 8.2% from FCF of $88 million in 2013 or FCF margin of 4.1%. Pressure on cash flows stemming from restructuring activities lessened in the first half of 2014, as the company undertook only two small incremental cost initiatives. Easing capital spending, a steady dividend and modest pension contributions will yield FCF around $200 million or more annually, in Fitch's estimation.

Balanced Capital Deployment
PerkinElmer's present top priority for capital deployment is asset purchasing, specifically directed to small opportunities to broaden the research and product portfolios as well as targets in adjacent markets. The company balanced capital deployment since the end of 2011 between debt reduction ($91 million), dividends ($79 million), acquisitions ($63 million), and share repurchasing ($168 million).

In the absence of acquisition opportunities, Fitch believes that shareholder returns, especially share repurchases, will take precedence over debt reduction given current financial flexibility following debt repayment over the past several years that has yielded solid leverage for the rating category. Fitch sees potential for increased share repurchasing and/or leveraging transactions over the intermediate term given the improved debt leverage and stronger FCF generation; however, Fitch feels that the actions, if realized, may be managed in a financially disciplined manner.


Positive: Future developments, individually or collectively, that may lead to positive rating action include the following:

--A one-notch upgrade could be warranted if PerkinElmer maintains gross debt leverage around 2.0x. The leverage level can be sustained even in the absence of debt reduction from solid operational performance stemming from a return to mid-single digit revenue growth that leverages a leaner operating cost structure resulting from savings derived from restructuring actions.

--Fitch would also require EBITDA margin forecasts approaching 20% prior to an upgrade.

Negative: Future developments, individually or collectively, that may lead to negative rating action include the following:

--Downward rating action would result from pressure on operations or leveraging shareholder-friendly actions such that debt leverage increases and stays above 3.0x over the intermediate term.

--An inability to improve and sustain margins at a level more commensurate with peers may compress this leverage range for negative rating action.

--Operational weakness could stem from lower-than-anticipated results due to poorer-than-expected sales performance as the company's diversified portfolio cannot withstand headwinds of spending constraint in academia and from certain geographies.


Fitch has affirmed PerkinElmer Inc.'s ratings as follows:

--IDR at 'BBB-';
--Credit facility at 'BBB-';
--Senior unsecured notes at 'BBB-'.

The Rating Outlook has been revised to Positive from Stable.

S&P Rates American Airlines' (AAL) Unsecured Notes Offering at 'B-' Sep 18, 2014 11:25AM

Standard & Poor's Ratings Services today assigned its 'B-' issue-level rating and '5' recovery rating to American Airlines Group Inc.'s (Nasdaq: AAL) new $500 million senior unsecured notes due 2019. The '5' recovery rating indicates our expectation for modest (10%-30%) recovery in a payment default scenario. Subsidiaries American Airlines Inc., US Airways Group Inc., and US Airways Inc. guarantee the notes.

Our existing 'B-' issue-level rating and '5' recovery rating on US Airways Group Inc.'s senior unsecured debt, which American Airlines and parent American Airlines Group guarantee, are unchanged.

Our recovery rating on the senior unsecured debt factors in the possibility that American Airlines Inc. could choose to issue up to $1.8 billion of additional senior secured credit facilities, as the company noted in the prospectus. (For the complete recovery rating rationale, see our recovery report on American Airlines Group, to be published on RatingsDirect.)

Standard & Poor's revised its rating outlooks on American Airlines Group (AAG) and its subsidiaries American Airlines and US Airways Inc. to positive from stable on Aug. 29, 2014. At the same time, we affirmed our ratings on the companies, including the 'B' corporate credit ratings.

AAG reported strong earnings during the first half of 2014, with net income of $1.3 billion, and we expect that this trend will continue for the remainder of the year and into 2015. The company is benefiting from generally positive revenue conditions in the U.S. airline industry, since the largest four airlines, which have a combined market share of more than 80%, are adding capacity cautiously and focusing on raising load factors (utilization) and yield (pricing). AAG is also capturing merger cost and revenue synergies, which should increase once regulatory approvals (a single operating certificate) allow the full operational integration of the company's two airline operating subsidiaries. That integration, which AAG expects to be complete in late 2015, also carries risks, since it will involve combining information technology systems and aircraft crews.

Endo Int'l (ENDP) Placed on CreditWatch Negative by S&P Following Auxilium (AUXL) Bid Sep 17, 2014 03:04PM

Standard & Poor's Ratings Services today placed its ratings on Endo Int'l (Nasdaq: ENDP), including its 'BB-' corporate credit rating, on CreditWatch with negative implications. The CreditWatch placement follows Endo's announcement of its unsolicited bid of roughly $2.2 billion for Auxilium Pharmaceuticals (Nasdaq: AUXL).

"We expect the acquisition to be financed with stock, on hand cash, and debt. As of June 30, 2014, Endo had $1.4 billion of cash and investments on hand," said credit analyst Arthur Wong. "While the proposed acquisition would add a number of new and promising products to Endo's portfolio and provide a number of revenue and cost synergy opportunities, it will not likely alter our "fair" assessment of Endo's business risk profile."

We will resolve the CreditWatch placement on Endo following our reassessment of Endo's overall financial policy, as well as the company's integration plans and synergy expectations. A potential downgrade is limited to one notch. However, even if the Auxilium acquisition is not completed, Standard & Poor's may still consider a one notch downgrade, to 'B+', given management's higher-than-expected pace of major debt financed acquisitions and financial policies that may not be compatible with our current "aggressive" financial risk profile assessment.

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