Baxter International Inc.'s Proposed Senior Unsecured Notes Rated 'A-'

NEW YORK (S&P Global Ratings) March 24, 2020--S&P Global Ratings today assigned its 'A-' issue-level rating to Baxter International Inc.'s proposed senior unsecured notes issued in two tranches. We expect the company to use the proceeds for general corporate purposes.
Our rating on Baxter reflects the company's substantial scale, its vast addressable market, the company's leading market position in multiple categories of life-sustaining products, strong presence in the hospital channel, and strong diversity profile (For a recent report on the Medical Devices industry, please see "The Medical Devices Industry Outlook Is Stable On Strong Pipelines And Moderate M&A," published on Feb. 20, 2020). The rating also reflects our expectation that the company will sustain leverage at or below 2x (net of cash on hand) in 2020-2021 and cash flow generation will remain steady, despite the challenges of the global coronavirus pandemic.
We believe Baxter is well-positioned to withstand some headwinds related to the pandemic, given the medically necessary nature of many of its products, relatively low elective procedure exposure, good capacity for underperformance within the rating, and a strong liquidity position with limited upcoming debt maturities. Baxter's 2019 leverage was 1.7x, compared to the 2x threshold for the rating, giving the company a comfortable cushion. In addition, as of March 17, 2020, Baxter had around $3 billion of cash on hand and $2 billion of capacity under its revolving credit facility.
While we expect the pandemic to hurt Baxter's 2020 operating performance on some level, the stable outlook reflects our view that the company has the capacity to withstand a moderate EBITDA decline while maintaining leverage at or below 2x in 2020-2021. We estimate around 15% of Baxter's revenues are exposed to elective procedures and capital purchasing. For example, Baxter's advanced surgery products (~8% of revenues in 2019) are heavily used in elective procedures within spine, urology, and general surgery. In addition, the pharmaceuticals segment may see a decrease in anesthesia products sales since some percentage of these are used in elective procedures. We also think the medication delivery segment may experience lower infusion pumps sales. At the same time, we expect the acute therapies segment to benefit from increased sales of its acute kidney injury products, which are frequently used in COVID-19 cases. In addition, the medication delivery segment may experience increased sales of IV bags.
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