Fitch assigns Medline B+

Fitch Ratings said it assigned a first-time long-term issuer default rating of B+ to the new, indirect parent of Medline Industries, Inc. known as Mozart Debt Merger Sub Inc. The agency also assigned a new B+ long-term IDR rating to Mozart RE Debt Merger Sub Inc., which is a subsidiary of Mozart Debt Merger Sub Inc.

Concurrently, Fitch gave expected ratings of BB-/RR3 to new long-term secured credit facilities that apply to Mozart Debt Merger Sub Inc. The new secured long-term credit facilities will comprise a five-year $1 billion revolver, a seven-year $6 billion term loan B and a seven-year $1 billion euro-equivalent term loan.

“A combination of strong persistency of existing customers and the ability to effectively penetrate both the acute care and post-acute care health care market with private label products produces a high level of profitability and cash flow. Investments in new and existing capacity is expected to help Medline maintain FCF/debt of 5%-10% over the near to medium term,” Fitch said in a press release.

However, gross leverage for the deal is forecasted to be above 7x, the agency said, but it sees Medline cutting the debt by more than $2.5 billion to $3 billion over the next three fiscal years. If so, the company would cut its gross leverage to between 5x-5.5x.

The proceeds and the proceeds from the expected sale of other senior secured debt, senior unsecured debt, new common equity and the rollover of common equity are expected to be used to fund the purchase of Medline by a group of new investors and Medline’s current owners.

The outlook is stable.

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