OREANDA-NEWS. S&P Global Ratings today assigned its 'BBB' issue-level ratings to Zimmer Biomet Holdings Inc.'s senior unsecured credit facility, including its $1.5 billion multicurrency revolving credit facility and a $750 million term loan.

We expect the company to use term loan proceeds to repay outstanding balances on its revolver, which was drawn to fund its previously announced acquisition of LDR Holding Corp. The new $1.5 billion revolver will replace the existing revolving credit facility.

Our 'BBB' corporate credit rating on Zimmer Biomet reflects our assessment of the company's business risk as strong and the financial risk profile as significant. The outlook is stable.

Zimmer Biomet's business risk profile reflects its substantial scale (pro forma 2016 revenues of about $7.5 billion), above-average profitability (adjusted EBITDA margins exceeding 35%), substantial product concentration in hip and knee (combined account for 64% of revenues), good geographic diversity, substantial intellectual property, and high barriers to entry.

Our view of the company's financial risk as significant reflects our expectation for adjusted net debt leverage of about 3.7x and 3.3x in 2016 and 2017, respectively, and the ratio of funds from operations (FFO) to debt of 17.5% in 2016 expanding to about 20% for 2017. Notwithstanding the approximately $1 billion acquisition of LDR Holding Corp., shortly after Zimmer's $13.35 billion acquisition of Biomet in 2015, we expect the company to direct free cash flow to reduce debt over the next year and to reduce debt leverage to below 3.5x. The company's public commitment to reduce debt leverage, and a long track record of maintaining very conservative levels of debt leverage give us confidence in these expectations.

The stable outlook on Zimmer reflects our expectation that the company will achieve modest revenue growth, generate strong free operating cash flows, and generally maintain debt leverage in the mid - to low end of the 3x to 4x range over the next two years.