S&P puts Baxter on watch

S&P said it placed Baxter International Inc.’s A- issuer credit and unsecured debt ratings on CreditWatch with negative implications.

Baxter plans to acquire Hill-Rom Holdings Inc. for about $12.7 billion, which includes the assumption of Hill-Rom's debt and acquisition fees.

“The CreditWatch reflects our view that the size of the proposed debt-financed acquisition ($12.7 billion, including the assumption of Hill-Rom's debt and acquisition fees) indicates Baxter's financial policy is more aggressive than we expected. Specifically, we expect the company to maintain long-term S&P Global Ratings-adjusted leverage of more than 3x, which compares with our previous expectation for leverage in the 1.5x-2x range,” the agency said in a press release.

If the incremental debt leads to a material increase in its leverage, there is a higher likelihood of a downgrade. “Assuming the company remains committed to its publicly stated leverage-reduction plan, which we expect will improve its S&P Global Rating-adjusted leverage to about 3.5x in 2023, we would likely limit the downgrade to two notches,” the agency said.

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