S&P Global Ratings assigned preliminary B ratings to Varex Imaging Corp. and set the outlook on the ratings to negative.
Ratings said the profit margins of Salt Lake City-based Varex, which provides X-ray imaging components primarily for original equipment manufacturers, or OEMs, are below that of its peers due to intense competition and substantial negotiating power held by large OEM customers. However, the company has good geographic diversification, market share and long-standing customer relationships.
The agency expects the company's revenues to decline by 7% in 2020 considering its relatively inflexible cost structure.
The negative outlook takes into account the risk that the company may recover more slowly than anticipated, considering the uncertainty around the resolution of the coronavirus pandemic and how quickly capital investments at end-customers will rebound.
Meanwhile, Moody's assigned a B2 corporate family rating and a B2-PD probability of default rating to Varex, with a stable outlook.
Moody's analyst Jean-Yves Coupin said the B2 rating incorporates a sharp deterioration in credit metrics due to the adverse impact of the pandemic.
Coupin added that pro forma leverage will improve to below 7x over the next 12 to 18 months as the company's earnings recover due to the return of medical procedures and cost-cutting initiatives.
The stable outlook is based on Moody's expectation that Varex will steadily reduce its very high leverage as the pandemic subsides, reflecting an earnings recovery.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.