The downgrade of investment-grade medical device companies was mostly caused by debt-financed mergers and acquisitions, according to S&P. Factors like changes in operating performance trends and financial policy also contributed to negative ratings.
The industry has been facing several years of consolidation caused by pressures from U.S. healthcare reform, low interest rates, a desire to use growing foreign cash reserves more productively, increased consolidation among hospitals, and the potential for cost and revenue synergies.
Such consolidations, though, don’t always go smoothly. S&P analysts, for example, saw underperformance at The Cooper Cos. due to integration problems from its acquisition of Sauflon Pharmaceuticals, as well as foreign exchange headwinds. As a result, Cooper was downgraded to speculative grade from investment grade.