Insulet’s corporate family rating upgraded by Moody’s Ratings

Investing.com -- Moody’s Ratings has raised the Corporate Family Rating (CFR) of Insulet (NASDAQ:PODD) Corporation to Ba3 from B1. The Probability of Default Rating (PDR) also went up to Ba3-PD from B1-PD. At the same time, Moody’s affirmed the Ba2 rating on Insulet’s senior secured term loan and assigned a Ba2 rating to Insulet’s new $500 million senior secured revolving credit facility due in 2030. Moody’s also gave a B2 rating to the new $450 million senior unsecured notes due in 2033.

Despite these changes, the rating on Insulet’s senior secured revolving credit facility remains at Ba2. Moody’s plans to withdraw this rating once the refinancing transactions are completed. The Speculative Grade Liquidity Rating of SGL-1 remains unchanged and the outlook for Insulet continues to be positive.

The upgrade in ratings follows the announcement of a $450 million senior unsecured notes offering. The proceeds from this offering, along with cash on hand, will be used to retire the $800 million of convertible notes due in 2026. Insulet has also seen a reduction in leverage due to healthy earnings growth in recent quarters. Moody’s expects this trend to continue due to strong earnings growth supported by the successful commercialization of Omnipod 5(R), cleared by the FDA last year for use by patients with Type 2 diabetes.

Barring any debt-funded acquisitions or shareholder distributions, Moody’s expects Insulet’s gross debt to EBITDA to trend towards 2.0x over the next 12 to 18 months from 2.7x at December 31, 2024.

The Ba2 rating on Insulet’s senior secured credit facilities reflects the loss absorption provided by the new $450 million unsecured notes. However, these notes offer less loss absorption capacity than the retired $800 million of convertible notes. The B2 rating on the unsecured notes is due to their lower position in the capital structure compared to the secured term loan and revolving credit facility.

Insulet’s Ba3 rating is supported by its strong position in the fast-growing insulin management business, driven by the success of the Omnipod wearable delivery system. The latest product, Omnipod 5, has seen technological advancements with its integration with continuous glucose monitor (CGM) systems, automated insulin delivery capabilities, and cloud connectivity.

Insulet’s moderate financial leverage and very good liquidity also support the rating. However, the company’s focus on a single product-line and growing product diversity expose it to competitive and business execution risks. Insulet’s continued success is dependent on ongoing research and development and innovation.

Insulet’s SGL-1 Speculative Grade Liquidity Rating reflects its very good liquidity due to significant cash and short-term investments. These are expected to be approximately $600 million at December 31, 2024. This provides more than enough coverage for anticipated cash uses including capital expenditures and working capital needs.

Insulet’s liquidity will be further supported by an upsized $500 million revolving credit facility that expires in 2030. This facility has a springing leverage covenant set at 6.5x if utilization exceeds 35%.

The positive outlook reflects the potential for a higher rating over the next 12 to 18 months due to ongoing uptake of the Omnipod 5, high earnings growth and a continuation of recent deleveraging trends.

Factors that could lead to a rating upgrade include improved scale, reduction in reliance on a single product category, continued strong earnings growth while maintaining very good liquidity, and overall conservative financial policy. The ratings could be upgraded if the company establishes a track record of sustaining debt/EBITDA below 2.5x.

Factors that could lead to a downgrade include erosion in competitive position due to significant innovation advances by competitors, unforeseen manufacturing or supply chain disruptions, or weakened liquidity. The ratings could be downgraded if debt/EBITDA is sustained above 3.5x.

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