Fitch Ratings: ZBH Dental/Spine Spin-Off Leverage Neutral
· 02/05/2021 09:37
(The following statement was released by the rating agency)Fitch Ratings-Austin-05 February 2021: Zimmer Biomet Holdings, Inc.'s (ZBH; BBB/Stable) proposed spin-off of its dental and spine business is expected to be leverage neutral to the credit, with no material rating implications, according to Fitch Ratings. We expect the spin will allow ZBH to focus more closely on its core offerings, partially offsetting the slightly less diversified business. Fitch's leverage forecasts are unchanged with gross debt/EBITDA expected to be around 3.0x by the end of 2021, which is appropriate for ZBH's 'BBB' IDR. Fitch expects some debt reduction at ZBH following the spin, resulting in the transaction being leverage neutral. While there will be lost revenue and EBITDA associated with the dental and spine business, we anticipate a stronger growth and margin profile at legacy ZBH due to its continued investment in its core assets. ZBH continues to focus on its core orthopedics and sports medicine and extremities business, and has reportedly gained share throughout the pandemic. We expect new product and service revenue, including its robotics offering and complimentary solutions, to help ZBH achieve and then maintain an organic growth profile of 4%-5% annually. Deferred procedures led to some backlog of revenue and EBITDA due to pandemic-related pressures. Fitch expects revenue and EBITDA to largely return during 2021, resulting in gross debt/EBITDA around 3.0x by the end of the year. Fitch expects the pace of strategic M&A and asset divestitures to accelerate during 2021 among medical device companies as the operating environment stabilizes and companies position themselves for future growth. M&A targets and potential divestitures will likely help strengthen positions in core businesses and are expected to be more tuck-in in nature. We expect companies will focus most on filling product gaps, advancing technologies/capabilities and de-prioritizing lower growth assets with less favorable market shares. Low risk of large-scale regulatory changes has helped to minimize the need for transformational transactions. Broader balance sheet flexibility and a low interest rate environment should help facilitate the increased demand for M&A for the sector. The search for growth is likely to be balanced against efforts to preserve balance sheets and liquidity until the health crisis eases, even though the effects of the pandemic have been relatively manageable. For additional details see: www.fitchratings.com/research/corporate-finance/fitch-rates-zimmer-biomet-first-time-idr-bbb-outlook-stable-07-10-2020 www.fitchratings.com/research/corporate-finance/us-medical-device-diagnostics-healthcare-m-a-poised-to-increase-25-01-2021 Contact: Caitlin Blalock Associate Director +1 512-215-3732 Fitch Ratings, Inc. 2600 Via Fortuna, Suite 330 Austin, TX 78746 Robert Kirby, CFA Director +1 312-368-3147
Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: firstname.lastname@example.org
Additional information is available on www.fitchratings.com
Copyright © 2021 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.