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Investing.com -- Fitch Ratings has upgraded the Issuer Default Rating (IDR) of Bausch + Lomb Corporation (BLCO) to ’B’ from ’B-’ on April 17, 2025. The rating on its senior secured debt was also raised to ’BB’ with a Recovery Rating of ’RR1’ from ’BB-’/RR1. The upgrade follows a similar action for its parent company, Bausch Health Companies Inc. (NYSE:BHC), which was upgraded to ’CCC+’ from ’ CCC (WA:CCCP)’.
Fitch has maintained the Rating Watch Evolving ( RWE (LON:0HA0)) on all of BLCO’s ratings. This reflects BHC’s ownership of BLCO and the potential for BLCO’s ratings to change if BHC’s ratings are downgraded before a potential separation. BLCO’s ratings could also be downgraded if Fitch reassesses the strength of the link between the two entities, which currently provides a two-notch uplift.
BLCO’s ratings are primarily driven by BHC’s ’CCC+’ IDR, as long as the two entities are not separated. Fitch views BLCO’s Standalone Credit Profile (SCP; ’b+’) as stronger than BHC’s. However, until separation, any changes in linkage could lower BLCO’s ratings.
BLCO has a strong position in the eye care market, benefiting from aging demographic trends, improved income levels in emerging markets, increasing digital screen times, and a rise in the incidence of diabetes. Fitch expects the company to continue to pursue innovation in Vision Care, which will help drive intermediate- and long-term revenue growth while also supporting margins.
BLCO recently acquired Novartis (SIX:NOVN)’ ocular surface pharmaceuticals portfolio, including Xiidra, which is expected to significantly boost BLCO’s profitability. The acquisition also includes a mid-stage developmental pharmaceutical product and AcuStream, a device for precise dosing and accurate delivery of certain topical ophthalmic medications.
Fitch expects BLCO to maintain leverage between 5x and 5.5x following the acquisition. It also assumes that margins will remain relatively stable over the long term but assumes a 100bps -150bps compression in 2025, sustaining at those levels thereafter due to near-term macroeconomic headwinds and potential impacts from global tariff disputes.
BLCO is expected to have consistently positive Free Cash Flow (FCF) due to advancing sales, relatively stable margins, solid working capital management, and moderate capital expenditure requirements. Fitch does not expect BLCO to pay dividends or engage in share repurchases.
Fitch compares BLCO to other medical device and products companies, including Boston Scientific Corp (NYSE:BSX). (A-/Stable), Becton, Dickinson & Company (BBB/Stable), Zimmer Biomet Holdings (NYSE:ZBH), Inc. (BBB/Stable), Solventum Corporation (BBB-/Rating Watch Positive), and ICU Medical (NASDAQ:ICUI) (BB/Negative). However, unlike its peers that address multiple markets, BLCO solely focuses on eye health.
In its recovery analysis, Fitch estimates a going-concern enterprise value of $6.0 billion for BLCO and assumes that administrative claims consume 10% of this value in the recovery analysis. It also assumes a recovery enterprise value/EBITDA multiple of 7.0x for BLCO, generally in line with the 6.0x-7.0x typically assigned to medical device/specialty pharmaceutical manufacturers.
Fitch’s rating sensitivities include potential changes related to ring-fencing and access and control, which could lead to a rating on a consolidated basis with BHC or with a one notch uplift rather than two notches. A downgrade at BHC could also lead to negative rating action. On the other hand, positive rating action could occur if Fitch views BLCO on a standalone basis or if there is an upgrade at BHC.
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