S&P rates Fortrea, notes, loan BB

S&P said it assigned BB ratings to Fortrea Holdings Inc. and its planned $500 million term loan B due 2030 and $570 million of senior secured notes. The recovery rating on the secured debt is 3 (55%). The outlook is stable.

Laboratory Corp. of America Holdings is planning to spin off its clinical development business into a separate independent company to be called Fortrea Holdings Inc.

“Through its history with LabCorp and Covance, Fortrea's CRO business is one of the oldest and most respected in the industry. We view this as a generally stable and predictable industry with moderate barriers to entry but a high level of competition among market participants. We believe the industry has long-term growth prospects as pharmaceutical and biotechnology companies continue increasingly depend on outsourced services and as trials become more complex,” the agency said in a press release.

However, S&P noted, “Fortrea was among the most labor-intensive businesses within LabCorp and LabCorp Drug Development, and its profitability lagged their averages as well. Its separation from LabCorp and transition to a stand-alone company present some risks to our base case assumptions, but we believe it also provides the business an opportunity to control investment, improve efficiency, and adapt more quickly to changing market dynamics.”

The agency said it forecasts Fortrea’s leverage will be between 3x and 4x over the next two years and that cash flow will improve by 2025 as increased capital expenditures wind down.

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