July 25 – Standard & Poor’s Ratings Services said today that it assigned its
‘B-‘ issue-level and ‘6’ recovery ratings to Warsaw, Ind.-based medical products
manufacturer Biomet Inc.’s proposed $550 million senior unsecured notes maturing
2020. The recovery rating reflects our expectation for negligible recovery (0 to
10%) in the event of default. The notes will rank equally with the company’s
existing and future senior unsecured indebtedness. We expect notes offering
proceeds to fund the purchase of the company’s senior toggle notes in a tender
offer. We expect the offering will not meaningfully alter Biomet’s outstanding
debt or credit metrics, which
include pro forma total adjusted debt to EBITDA of roughly 6x as of May 31,
2012. We expect debt leverage to remain consistent with the company’s ‘highly
leveraged’ financial risk profile (partially defined as adjusted debt to
EBITDA of more than 5x).
The ratings on Biomet Inc. reflect its “satisfactory” business risk profile
and “highly leveraged” financial risk profile, according to our criteria.
Biomet’s satisfactory business risk profile reflects its somewhat narrow focus
in orthopedic products and pricing pressure, as well as the relatively stable
nature of the orthopedic products industry, Biomet’s relatively full product
offering, and favorable long-term volume trends. The financial risk profile
and corporate credit rating overwhelmingly reflect our expectation for minimal
debt reduction: Our fiscal 2013 forecast for adjusted funds from operations
(FFO) to total debt is between 5% and 10%, well within the less-than-12%
guideline for a highly leveraged financial risk profile. We believe this key
debt protection measure will not improve, because we expect modest revenue
growth in fiscal 2013 and pricing pressure, constraining EBITDA expansion and
significant improvements in cash flow. We believe debt to EBITDA will remain
well above the 5x threshold for a highly leverage financial risk profile.
Fiscal 2012 revenue growth of 3% in constant currency was consistent with our
expectations. Constant-currency revenue growth improved to 5% in the May 2012
quarter, which we believe reflects improved industry growth and some modest
market-share gains for Biomet, likely related to the launch of new products
and the near completion of the trend away from metal-on-metal hips. We believe
revenue growth will remain in the low- to mid-single digits in fiscal 2013,
consistent with our expectations for the industry and about twice the rate of
GDP growth. We believe EBITDA margins, including our usual adjustments, could
remain relatively flat (excluding the impact of the Affordable Care Act 2.3%
medical device tax), despite ongoing pricing pressures. We expect debt
leverage to remain relatively flat in fiscal 2013.
RELATED CRITERIA AND RESEARCH
— Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
— Business Risk/Financial Risk Matrix Expanded, May 27, 2009
— 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
— 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
RATINGS LIST
Biomet Inc.
Corporate credit rating B+/Stable/–
Rating Assigned
$550 mil. sr unsec notes due 2020 B-
Recovery rating 6
