Moody's Upgrades IMS Health (IMS) to 'Ba2'; Outlook is Stable
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Moody's Investors Service ("Moody's") upgraded the Corporate Family Rating and Probability of Default Rating of IMS Health Incorporated (NYSE: IMS) to Ba2 and Ba2-PD, from Ba3 and Ba3-PD, respectively. Moody's also upgraded the senior secured rating of IMS Health to Ba1 from Ba2 and the senior unsecured rating to Ba3 from B2. Moody's also upgraded the Speculative Grade Liquidity Rating to SGL-1 from SGL-2, signifying the expectation of very good liquidity over the next 12 months. This concludes the rating review for IMS Health that was initiated on May 3, 2016. The outlook is stable.
These rating actions address the new capital structure associated with the merger of IMS Health Holdings Inc. and Quintiles Transnational Holdings Inc. The merged company will be named Quintiles IMS Holdings, Inc. ("Quintiles IMS") which will be the publicly traded company. IMS Health Incorporated, which will include the assets of Quintiles following the merger, will be the borrower of all the debt in the capital structure and will be a wholly owned subsidiary of Quintiles IMS. The acquisition is expected to close early in the fourth quarter of 2016.
The upgrade of IMS Health's ratings reflects the enhanced scale, diversity and market presence of the combined company. Further, the financial leverage of the combined company will be lower than stand-alone IMS Health due to the all-equity merger with Quintiles. Moody's anticipates initial debt/EBITDA of around 4.0x following the merger.
Following the close of the merger, Quintiles' senior secured credit facilities will be repaid, and Quintiles' $800 million 4.875% unsecured notes (which will continue to be rated Ba3) will be assumed by IMS Health. As a result, following the close of the merger, Moody's will withdraw the stand-alone ratings of Quintiles.
IMS Health Incorporated:
Corporate Family Rating to Ba2 from Ba3
Probability of Default Rating to Ba2-PD from Ba3-PD
Senior secured USD/EUR Term Loan B ($2.5 billion) to Ba1 (LGD2) from Ba2 (LGD3)
Senior unsecured EUR notes ($305 million) due 2023 to Ba3 (LGD 5) from B2 (LGD6)
Speculative Grade Liquidity Rating to SGL-1 from SGL-2
Senior secured revolving credit facility (extended and upsized to $1 billion) at Ba1 (LGD 2)
Senior secured USD/EUR Term Loan A (extended and upsized to $1.3 billion) at Ba1 (LGD2)
New Senior unsecured USD/EUR notes ($1.5 billion) due 2026/2024 at Ba3 (LGD 5)
Ratings upgraded and to be withdrawn upon repayment:
Senior unsecured USD notes ($500 million) due 2020 to Ba3 (LGD 5) from B2 (LGD6)
Existing Senior secured revolving credit facility to Ba1 (LGD 2) from Ba2 (LGD3)
Existing Senior secured USD/EUR Term Loan A to Ba1 (LGD2) from Ba2 (LGD3)
The outlook is stable.
The Ba2 Corporate Family Rating reflects the company's considerable size, scale and strong market positions as both a pharmaceutical contract research organization (CRO) and pharmaceutical data and analytics provider. The ratings are also supported by the company's good operating cash flow and very good liquidity. The ratings reflect Moody's expectation for a moderate appetite for leverage, with debt/EBITDA of around 4.0x. While earnings will grow as a result of favorable underlying market dynamics, Moody's does not anticipate material debt repayment and believes that most cash flow will go towards share repurchases and tuck-in acquisitions. The ratings are also constrained by the potential for integration disruption given the transformational nature of the merger.
Moody's could upgrade the ratings if Quintiles and IMS are successfully integrated and are able to maintain consistent revenue growth and favorable profit margins. If Moody's expects the company to maintain adjusted debt/EBITDA below 3.5x, the ratings could upgraded.
Moody's could downgrade the ratings if IMS Health experiences revenue declines and/or margin erosion in its core markets, or experiences significant disruption from the merger. Further, aggressive debt funded share repurchases or acquisitions could lead to a downgrade. For example, if Moody's expects adjusted debt to EBITDA to be sustained above 4.5 times, ratings could be downgraded.
Quintiles IMS will be a leading global provider of outsourced contract research and contract sales services to pharmaceutical, biotechnology and medical device companies. The company will also be a leading provider of critical sales and other market intelligence primarily to the pharmaceutical and biotech industries. Moody's expects annual net revenues to exceed $7 billion.
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