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Moody's gives Fortrea, loans Ba3
Moody's Investors Service said it assigned a Ba3 corporate family rating and Ba3-PD probability of default rating to Fortrea Holdings Inc. The agency also assigned a Ba3 rating to the planned $500 million term loan A, planned $570 million term loan B and proposed $450 million revolving credit facility. Moody's also assigned an SGL-2 speculative grade liquidity and a stable outlook.
Laboratory Corp. of America (Labcorp) plans to spin off Fortrea into a stand-alone company. Fortrea plans to raise new secured debt, consisting of term loans and other secured debt. Fortrea will use the $1.6 billion proceeds to fund a cash distribution to Labcorp and to pay related fees and expenses. Fortrea's beginning balance sheet is expected to include $120 million of cash.
“The Ba3 rating reflects the company's sizeable global scale, diversification, and strong market position in the contract research organization (CRO) business which will benefit from growing outsourcing from large pharmaceutical companies. The rating also reflects Fortrea's good margins, with opportunities for improvement from cost efficiencies, moderate free cash flow and good liquidity.
“The Ba3 rating also considers execution risks including Fortrea fully separating from Labcorp and establishing a credible track record. Moody's also believes the company's growth prospects are constrained by strong competition and an uncertain funding environment from biotech companies” the agency said in a press release.
Moody's said it forecasts Fortrea will lower its currently high starting leverage at 4.3x to below 4x by year-end 2025 reflecting earnings growth and modest outlays for business development.
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