S&P puts Hill-Rom on watch

Standard & Poor’s said it placed Hill-Rom Holdings Inc.’s BBB corporate credit rating on CreditWatch with negative implications.

Hill-Rom plans to acquire Welch Allyn for $2.05 billion, financing the deal with a combination of cash, stock and new senior secured and unsecured debt, S&P said.

The CreditWatch placement is based on expected significantly higher leverage levels, which are not fully offset by the company’s somewhat improved business risk, S&P said.

The business combination is expected to benefit Hill-Rom’s product diversity by giving the company entry into new product platforms within the medical diagnostic space and reducing dependence on the capital-intensive and slower-growing bed and surfaces operations, the agency said.

The transaction also expands Hill-Rom’s customer base across the continuum of health care, S&P said.

The company plans to issue new secured and unsecured debt of about $2.2 billion to finance this transaction and refinance existing debt, the agency said.

Leverage is expected to increase to about 4.5x pro forma this transaction and to decline to the high-3x range within one year of the close of the transaction, S&P added.

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