S&P Places Stryker (SYK) Ratings on Review for Downgrade

Standard & Poor's Ratings Services placed all of its ratings on Stryker Corp. (NYSE: SYK), including the 'A+' corporate credit rating and the 'A-1+' short-term rating, on CreditWatch with negative implications.

"The CreditWatch placement follows the announcement that Stryker plans to acquire Sage Products Holdings III LLC [Sage]," said Standard & Poor's credit analyst David Kaplan. We estimate that the transaction would increase adjusted net leverage to 1.5x to 2.0x for 2016, which is above our prior expectations for 2016, and higher than current levels of about 1.0x.

The proposed transaction modestly improves Stryker's scale, product diversity, and growth profile. This is offset by a material increase in financial risk.

In our opinion, increased financial leverage outweighs the benefits to business position, and we could lower the ratings by up to one notch.

While we believe Stryker can reduce adjusted net leverage below 1.5x within two years, we are uncertain about Stryker's commitment to doing so, and how it would balance that goal against other competing priorities including growth through acquisitions. We will evaluate its commitment to reducing adjusted net leverage below 1.5x in determining the final rating.

We will resolve the CreditWatch placement upon the consummation of the transaction after we resolve the degree to which the company is committed to reducing adjusted debt leverage below 1.5x, especially in the face of other competing strategic priorities.

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