Investing.com -- Moody’s Ratings has revised the outlook for Teleflex (NYSE: TFX ) Incorporated to negative from stable, while affirming the company’s Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default Rating (PDR) and the Ba2 rating on the senior unsecured notes. The company’s Speculative Grade Liquidity Rating (SGL) remains unchanged at SGL-1.

This decision follows Teleflex’s announcement of its intention to acquire BIOTRONIK’s Vascular Intervention business for around €760 million, with certain adjustments as stated in the purchase agreement. Additionally, Teleflex plans to initiate a $300 million accelerated share repurchase program. The acquisition and share repurchases will be financed by $500 million of incremental term loan A debt, a revolver draw, and cash on hand, with the acquisition expected to be finalized by the end of Q3 2025.

Teleflex also revealed plans to separate its Acute Care, OEM and Urology businesses through a tax-free spin-off transaction that will result in two independent publicly traded companies. This spin-off is anticipated to decrease Teleflex’s revenues and EBITDA by approximately 40% and 20% respectively. The company aims to maintain moderate financial leverage post-spin and will receive a dividend from the newly created company to repay debt at Teleflex. The spin-off is expected to be completed in mid-2026, subject to market, regulatory, and other conditions.

Despite retaining a strong position in higher growth businesses within vascular access, interventional and surgical products after the separation, the change in outlook reflects the view that the transaction also reduces Teleflex’s scale and business diversity. There are also some execution risks associated with the spinoff, which is planned after the acquisition of BIOTRONIK’s Vascular Interventional business.

Teleflex’s ratings affirmation is based on its history of operating with low to moderate financial leverage and very good liquidity. The company continues to generate strong free cash flow, supported by solid margins and continued earnings growth. Post-spin, Teleflex is expected to maintain strong credit metrics and moderate financial policies.

Teleflex’s G-3 score reflects increased risks in financial strategy and risk management due to the combination of share repurchases, debt financed M&A and spin-off. The company’s Ba1 Corporate Family Rating is supported by its scale, leading market positions in key products, and good revenue diversity. The company’s debt/EBITDA on a Moody’s adjusted basis was approximately 2.2x for the twelve months ended September 30, 2024.

However, Teleflex’s rating is constrained by industry-wide pricing pressures and the increased focus of payors on value-based healthcare. The risk of technology obsolescence and competition from larger medical products companies also pose challenges. Teleflex is expected to remain acquisitive and will use debt to fund acquisitions.

The company’s liquidity is expected to remain very good over the next 12-18 months. Factoring in the BIOTRONIK acquisition and share repurchases, the company would have $290 million of cash on hand and $678 million drawn out of its $1 billion revolver as of December 31, 2024.

The negative outlook reflects the heightened operational and execution risks from the company’s acquisition and integration of BIOTRONIK’s Vascular Intervention business, in tandem with a spin-off transaction.

Teleflex’s ratings could be upgraded if the company effectively operates as a stand-alone company post the pending spin-off of various segments and expands its scale and product sophistication. A downgrade could occur if the completed spin-off significantly reduces the scale, growth prospects, and business diversification of the company, or if there are unanticipated challenges related to the spin-off or issues with integrating the BIOTRONIK’s Vascular Intervention business.

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