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Parexel International Corporation -- Moody's downgrades Parexel's existing bank facilities to B2

·14 min read

Rating Action: Moody's downgrades Parexel's existing bank facilities to B2Global Credit Research - 04 Feb 2021New York, February 04, 2021 -- Moody's Investors Service ("Moody's") downgraded Parexel International Corporation's ("Parexel") existing senior secured credit facilities (revolver and term loan B) to B2 from B1. There are no changes to Parexel's other ratings including the B2 Corporate Family Rating and B2-PD Probability of Default Rating. The outlook is stable.Parexel used proceeds from an add-on to its existing term loan, in combination with cash, to redeem in full, its existing guaranteed senior unsecured notes. The downgrade of the existing bank credit facilities to B2 reflects that the secured debt will no longer benefit from loss absorption provided by the unsecured notes, with secured debt representing the preponderance of funded debt in the capital structure. Moody's will withdraw the ratings on the unsecured notes that were redeemed in full.Moody's downgraded the following ratings:Parexel International CorporationSenior secured term loan B due 2024 to B2 (LGD3) from B1 (LGD3)Existing senior secured revolving credit facility due 2022 to B2 (LGD3) from B1 (LGD3)RATINGS RATIONALEParexel's B2 Corporate Family Rating reflects Moody's expectation for high financial leverage, offset by good cash flow. Parexel is making considerable progress in addressing operational challenges that will make it increasingly competitive with Contract Research Organization (CRO) peers. The improvements have translated to strong new business bookings and revenue backlog growth comparable to its public peers.Parexel's rating benefits from good scale and breadth of service offerings as a CRO. Underlying demand for CRO services continues to be strong. In Moody's view, CROs have good long-term growth prospects as the biopharmaceutical industry continues to increase outsourcing of R&D functions, which will benefit Parexel. Further, Moody's expects Parexel to maintain very good liquidity, including ample cash reserves, which support the ratings.The stable outlook reflects Moody's view that a good earnings outlook coupled with debt repayment will result in debt/EBITDA under 7x over the next 12-18 months. This is somewhat offset by Moody's expectation for weaker free cash flow over the next 12 months as working capital benefits moderate and Parexel makes strategic investments to support future growth.ESG considerations include Parexel's financial policy, which Moody's believes is aggressive, a key governance risk. The company has maintained high financial leverage, in part due to a past debt-funded dividend in August 2018.Parexel's liquidity is very good, supported by more than $400 million of cash, pro forma for about $250 million of debt repayment earlier in January 2020. While Parexel's cash generating ability is strong, Moody's expects only modestly positive free cash flow in 2021, reflecting increased capital investments and working capital headwinds. Moody's expects free cash flow to return to a more normalized level of more than $200 million beyond 2021. Parexel also has a $300 million undrawn revolver that expires in September 2022. The revolver has a springing net senior secured leverage financial covenant that only applies if more than 35% is drawn. Given the substantial cash balance, Moody's does not expect the revolver to be drawn in the next 12 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if adjusted debt/EBITDA is sustained below 5.5x and the company demonstrates more conservative financial policies.The ratings could be downgraded if Moody's expects Parexel's debt/EBITDA to be sustained above 7x or if free cash flow is expected to be negative for a sustained period.Dually headquartered in Newton, Massachusetts, and Durham, North Carolina, Parexel International Corporation is a global biopharmaceutical services company providing clinical research and logistics, technology solutions and consulting services for the pharmaceutical, biotechnology, and medical device industries. Reported revenue for the twelve months ended September 30, 2020 was approximately $2.5 billion. The company is privately held by Pamplona Capital and publicly available information is limited.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Morris Borenstein VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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