Thermo's 'ever-increasing appetite for debt' raises analysts' eyebrows

When Thermo Fisher Scientific ($TMO) announced a $3.2 billion bond offering Wednesday, Fitch Ratings promptly lowered the medical device maker's credit rating to BBB and Moody's Investors Service said it likely will do the same. 

Thermo needs the financing for its blockbuster, a $13.6 billion buyout of Carlsbad, CA-based Life Technologies ($LIFE). That deal just got a green light in the EU last month after Thermo promised to unload its cell culture, gene modulation and magnetic beads divisions, which generated a combined $225 million in 2012 revenue. 

In a note Thursday morning, picked up by the Boston Business Journal, analysts at fixed-income research firm Gimme Credit slammed Thermo's bond sale, writing that Thermo overpaid for Life and questioning the company's "ever-increasing appetite for debt."

Thermo was the winner in an April bidding war for Life versus private-equity buyers led by Blackstone and Carlyle. Life Tech's gene sequencing technologies are viewed as a prize for Thermo, but the goods came at a steep price. 

Thermo's latest bond offering follows a $2.2 billion stock offering in June, BBJ noted. 

According to the BBJ, Gimme Credit's director of research, Carol Levenson, puts Thermo's debt load after the bond sale closes at "an estimated pro forma total of nearly $19 billion"--up from $2 billion in 2010. 

"Clearly, bond investors are attracted to TMO's relatively low-risk business profile, impressive margins, and strong free cash flow," Levenson reportedly wrote. "On our part, it's hard to look beyond management's willingness to increase leverage ... via largely debt-funded acquisitions."

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