STERIS Irish FinCo Unlimited Company -- Moody's assigns Baa2 rating to STERIS Irish FinCo senior notes

Rating Action: Moody's assigns Baa2 rating to STERIS Irish FinCo senior notesGlobal Credit Research - 24 Mar 2021New York, March 24, 2021 -- Moody's Investors Service ("Moody's") today assigned a Baa2 senior unsecured rating to STERIS Irish FinCo Unlimited Company's ("STERIS Irish FinCo") proposed offering of senior unsecured notes. Moody's also affirmed the Baa2 Issuer Rating of STERIS plc. The outlook is stable.The proposed note will be jointly and severally guaranteed on an unsecured basis by STERIS plc, STERIS Corporation and STERIS Limited. Due to the guarantee structure, Moody's views the note issued by STERIS Irish FinCo to be pari-passu with the existing debt obligations of STERIS plc, STERIS Corporation and STERIS Limited.Proceeds from the notes, together with borrowings under the company's bank credit facilities, will be used to fund the cash portion of the acquisition of Cantel Medical Corporation ("Cantel"). Proceeds will also be used to repay existing debt of Cantel, pay transaction fees and fund general corporate expenses and working capital needs.Affirmations:..Issuer: STERIS plc.... Issuer Rating, Affirmed at Baa2Assignments:..Issuer: STERIS IrishFinCo Unlimited Company..Senior unsecured notes at Baa2 Outlook Actions: ..Issuer: STERIS plc ....Outlook: Stable ..Issuer STERIS Irish FinCo Unlimited CompanyOutlook: Assigned at StableRATINGS RATIONALEThe Baa2 rating for STERIS reflects its leading market position in the provision of a broad range of sterilization services and products across a wide range of end users and a meaningful presence outside the United States. STERIS has a long track record of organic growth across its franchise as well as a history of successfully integrating acquisitions. While the acquisition of Cantel is a leveraging transaction and will involve some level of integration risks, it is strategically sensible. Overall scale will increase by approximately one-third and Cantel will provide further diversification, notably in the dental segment, an area where STERIS has historically been underrepresented. Moody's expects demand for sterilization products will continue to grow in the low to mid-single digit range over time primarily due to demographic trends that will fuel increased healthcare utilization.STERIS' rating is constrained by elevated leverage following the Cantel acquisition, which is occurring on the heels of the November 2020 acquisition of Key Surgical. Moody's expects Debt/EBITDA (incorporating Moody's standard adjustments) will be just under 3.5 times at closing in June 2021. The rating is also constrained by integration risk associated with the Cantel and Key Surgical acquisitions. The Baa2 rating takes into consideration the company's excellent liquidity profile with cash and equivalents of around $400 million and nearly $900 million on its revolving credit facility at closing.Environmental, social and governance factors are a consideration in STERIS's credit profile. The company has a significant exposure to environmental risks in its Applied Sterilization Technologies segment, which will account for approximately 16% of revenue on a pro-forma basis. Elevated risks result from the use of highly toxic gases and radioactive materials in the sterilization process and these activities are subject to stringent oversight by the Environmental Protection Agency in the US. With respect to governance, Moody's expects the company to be committed to conservative financial policies. This is based on the company's articulated leverage target of debt/EBITDA of 2.0-2.5x (approximately 2.25-2.75 on a Moody's adjusted basis). Moody's expects the company will reach its target range within 12-24 months from the closing of the Cantel acquisition.The outlook is stable. Moody's expects STERIS will execute on its deleveraging target through a combination of steady earnings growth, and debt repayment. Procedure volumes will continue to recover as the coronavirus pandemic begins to ebb, though there may be some quarter to quarter volatility in the near term.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if STERIS successfully integrates Cantel while maintaining organic growth in the mid-single digit range, consistent with recent history. The company would also need to remain balanced in its capital allocation priorities for an upgrade. Quantitatively, ratings could be upgraded if debt/EBITDA is sustained below 2.25 times.Ratings could be downgraded if there are any material operating missteps or integration challenges associated with the Cantel acquisition, or if the company continues to pursue debt-financed acquisitions while leverage remains elevated. Quantitatively, ratings could be downgraded if debt/EBITDA is sustained above 3 times.STERIS plc, with principal executive offices located in Dublin, Ireland and its primary administrative offices in Mentor, Ohio, is a leading provider of infection prevention and procedural products and services, focused primarily on markets of healthcare, pharmaceutical and research and medical devices. Revenues, pro-forma for the pending acquisition of Cantel Medical Corporation, exceed $4 billion.The principal methodology used in these ratings was Medical Product and Device Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1071635. 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. 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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. Scott Tuhy Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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