Moody’s gives Varex B2, notes B1

Moody’s Investors Service said it assigned a B2 corporate family rating and a B2-PD probability of default rating to Varex Imaging Corp. Moody’s also assigned a B1 rating to the company’s proposed $300 million of senior secured seven-year notes.

Proceeds will be used to fully retire debt, including a $266 million term loan A and a $100 million revolving credit facility. As part of this transaction, Varex will also issue a new $100 million unrated asset-based lending facility.

“Varex’s B2 corporate family rating incorporates a sharp deterioration in credit metrics due to the adverse impact of coronavirus pandemic,” said Jean-Yves Coupin, a Moody’s analyst, in a press release.

“That said, pro forma leverage will improve to below 7x over the next 12 to 18 months as Varex’s earnings recover due to the return of medical procedures and cost-cutting initiatives” continued Coupin. “Robust market positions in the niche medical imaging component business, a track record of generating positive free cash flow and a low appetite for leverage before the pandemic support the rating.”

The outlook is stable. The outlook reflects the expectation Varex will steadily lower its currently very high leverage as the pandemic ebbs, primarily reflecting a recovery in earnings, Moody’s said.

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