Out of the frying pan and into … the skillet?
That’s about the size of it for Boston Scientific Corp., which saw its bond rating raised from negative to stable by Moody’s Investors Service. It’s good news, but there’s still a ways to go.
Moody’s upgraded the Natick-based medical device giant’s U.S. public bond rating March 10 from “Ba2” to “Ba1” and its liquidity rating from “SGL-3” to “SGL-2”, while affirming its corporate credit rating at “Ba1.”
While the news take some of the sting out of the downgrade Boston Scientific received from Moody’s back in July 2007, the company’s rating is still a notch below investment grade, relegating it to junk bond status or, in Wall Street parlance, a “fallen angel.”
Ratings below “BB” or investment grade limit companies’ ability to raise capital. For example, under most state laws, it’s illegal for institutions that invest other people’s money to buy into companies that fall below investment grade.
That said, it appears that one of the world’s largest medical device makers is cleaning up its act, at least according to Moody’s. The credit rating agency cited three factors in its decision to upgrade BoSci:
1. Improved covenant cushions provided by recent amendments to the company’s bank facility;
2. Generally steady market share for key drug-eluting stent and cardiac rhythm management products;
3. Ongoing debt repayment and cost-savings initiatives.
While the review was mostly positive, Moody’s said there were still long-term issues clouding the outlook, namely outstanding litigation and Boston Scientific’s highly leveraged debt position, which lingers despite its debt reduction efforts.
CFO Sam Leno said the news validates the company’s moves to strengthen its financial position and drive profitable sales growth, adding that Boston Scientific plans to continue to focus on improving free cash flow, debt repayment and financial discipline.
