S&P: Baxter International Inc.'s Senior Unsecured Note Issuance Rated 'A-'
Our view of Baxter's business risk profile as strong reflects the company's substantial scale (about $10 billion of revenues for 2015, pro forma for the spin-off of Baxalta), leading market position (with number one or number two market share in most of the company's key product), and broad product, customer, and geographic diversification (including about 60% of sales outside the U. S.). The business risk assessment also reflects adjusted EBITDA margins of about 20% (adjusted to exclude operating leases, pension accruals, and stock compensation), which are materially below average compared with other medical device companies with a similar business risk assessment. We view Baxter as comparatively weak within the strong business risk profile category.
Our view of Baxter's financial risk as modest reflects our expectation for adjusted net debt leverage of about 2x and 1.8x in 2016 and 2017. We also take into consideration the impact of Baxter's relatively high levels of capital expenditures on cash flow over the next few years, which weigh on free-cash-flow based credit measures.
The corporate credit rating on Baxter is 'A-' with a stable outlook. The stable rating outlook reflects our expectation that Baxter will maintain leverage below 2x and its free cash flow will improve materially over the next few years, even as it seeks out modest sized acquisitions to leverage its channel, brand, and market position in markets adjacent to its current products.
For the corporate credit rating on Baxter, see the research update published May 13, 2016.