Moody's Raises Teleflex Outlook - Analyst Blog

Moody's Investors Service – the credit rating agency of Moody's Corporation MCO, raised its rating outlook on Teleflex Incorporated TFX to positive from stable. Subsequent to this ratings upgrade, shares of Teleflex climbed 0.6% to close at $105.50 till the last reported session.

Teleflex's new $250 million senior unsecured note offering also obtained a Ba3 rating from Moody's Investors Service. At the same time, Moody's upgraded Teleflex's Speculative Grade Liquidity Rating to SGL-2 from SGL-3 and reaffirmed its other existing debt ratings.

Teleflex's $250 million worth of senior notes offering is slated to mature in 2024, bearing an annual interest rate of 5.25%. Teleflex intends to use the net proceeds from the offering to repay approximately $245 million of borrowings under its revolving credit facility.

As of Mar 30, 2014, Teleflex's outstanding revolving credit facility, due on Jul 16, 2018, stood at $680 million. With the refinancing of revolver borrowings and the repatriation of overseas cash, Moody's is confident of an improvement in Teleflex's liquidity profile.

Moody's believes that an enhanced liquidity outline will enable Teleflex to carry out small- to moderate-sized acquisitions and fund a possible conversion of its $400 million in convertible notes. Based on this rationale, the rating agency raised its Speculative Grade Liquidity Rating for Teleflex to SGL-2.

Moody's is highly optimistic with regard to the acquisition of Vidacare Corporation by Teleflex in December last year, which was financed through borrowings raised under its revolving credit facility. The agency anticipates margin and cash flow improvement on the back of synergies from the buyout as well as the company's cost saving initiatives.

Furthermore, Moody's positive outlook on Teleflex stems from the belief that the latter will pursue small- to moderate-sized acquisitions, remain conservative in its shareholder initiatives, witness improvement in organic growth rates, and maintain good liquidity.

As far as the company's other debt ratings are concerned, Moody's reiterated its Corporate Family Rating CFR at Ba3, Probability of Default Rating (PDR) at Ba3-PD, senior subordinated notes at B1 and convertible senior subordinated notes at B2.

Teleflex's Ba3 CFR reflects Moody's expectations of moderately high leverage and limited free cash flow relative to debt. Moody's further expects revolver borrowing repayment and cash repatriation to bring down the debt/EBITDA ratio to about 3.4 times from its current level of 4.0 times.

As of Mar 30, 2014, Teleflex's total long-term borrowings stood at $1,289.3 million, marginally up by 0.2% from $1,286.3 million as of Dec 31, 2013.

Teleflex currently carries a Zacks Rank #3 (Hold). Alphatec Holdings, Inc. ATEC and RTI Surgical Inc. RTIX are better-ranked medical instruments stocks with a Zacks Rank #1 (Strong Buy).