Owens & Minor New Bank Loan Rated 'BB'
NEW YORK (Standard & Poor's CreditWire) May 12, 2000--Standard
& Poor's today assigned its double-'B' bank loan rating
to Owens & Minor Inc.'s $225 million senior unsecured revolving
credit facility due 2003. In addition, Standard & Poor's withdrew
its existing double-'B' bank loan rating for Owens & Minor,
since it has been replaced by the new facility. At the same time,
Standard & Poor's affirmed its double-'B' corporate
credit, its single-'B'-plus subordinated debt rating, and its
single-'B' preferred stock rating on the company. The outlook is
stable.
The rating on the bank facilities is the same as the corporate credit
rating. Since the facility is unsecured, the bankers will fare the same as
other senior creditors in the event of a default. Currently ample asset
coverage may be expected to dwindle in a default scenario.
The speculative-grade ratings for Owens & Minor reflect the
company's sound market position in a competitive and dynamic
industry, offset by expectations for moderate-size debt-financed
acquisitions.
The Richmond, Virginia-based company is the largest domestic pure
distributor of medical supplies and devices to hospitals. Size, breadth of
product offerings, computerized order-entry and tracking systems, and
service quality provide competitive advantages. Moreover, inclusion in
almost all the major group purchasing organizations not only provides
substantial customer diversification, but also allowed Owens & Minor
to replace revenues lost from the cancellation of the Columbia/HCA
contract in 1998. In addition, by focusing on integrated delivery
networks, the company is increasing its breadth of clients to include
alternate site providers, especially surgery centers, large physician
groups, and rehabilitation providers. Furthermore, enhanced working
capital management has aided the company in generating free operating cash
flow.
Nevertheless, strong pricing pressures limit financial flexibility.
Considerable consolidation in the industry, including the entry of
well-entrenched pharmaceutical distributors into the medical-supply
distribution business and the emergence of e-commerce firms present new
risks. Although inventory turnover is improving, it remains lackluster, at
less than 10 times per year. Still, Standard & Poor's expects
funds flow to adjusted debt to be at least 15%.
Outlook: Stable
The rating reflects some capacity for the company to make moderate-size
debt-financed acquisitions, Standard & Poor's said. --
CreditWire
| Credit Analyst: | Jean C Stout, New York (1) 212-438-7865 |
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