Medical device maker makes $1b loan payment
Natick company also tweaks credit pacts as it revamps business
Boston Scientific Corp., the struggling medical device maker, said yesterday it made a $1 billion early loan payment and renegotiated some loan agreements, giving the Natick company more breathing room as it revamps its business.
The move comes at a time when Boston Scientific's shares have skidded amid concerns about everything from its crushing debt to dimmer growth prospects for its core business, stents. Last month, Moody's Investors Service cut the company's bond rating to "junk" status, a level below investment grade, reflecting concerns that it could have trouble paying off its loans. The company's stock is down 26 percent this year and trading near a five-year low.
"These changes provide significant financial flexibility," Jim Tobin, Boston Scientific's chief executive, said in a statement.
To get back on track, Boston Scientific recently unveiled plans to look into selling three units, sell some investments, and eliminate an unspecified number of jobs in an effort to pare down $9 billion in debt, much of it related to the company's $27 billion takeover of Guidant Corp. last year.
The $1 billion prepayment, made on a $5 billion term loan, included $750 million in cash and $250 million from a secured credit line. Boston Scientific said the move will lower its debt by $750 million.
In addition, the company said it successfully tweaked the terms of the $5 billion loan and a $2 billion credit line, giving it more freedom to make decisions without running afoul of its loan terms. As part of its borrowing, Boston Scientific is required to meet certain earnings targets and debt levels. Under the new terms, it can carry a higher debt to earnings ratio and exclude up to $300 million of any restructuring charges and up to $500 million of any litigation charges from the earnings calculations.
"This move reinforces our view that the company is both able to manage leverage requirements and is not facing a cash crunch," said Wachovia Capital Markets LLC analyst Larry Biegelsen in a note to investors.
Boston Scientific said it hopes to provide more details by year-end about plans to trim staff. It has 28,000 employees worldwide, including 2,400 in Massachusetts, mainly at its Natick headquarters, an endosurgery division in Marlborough, and a Quincy distribution center. A spokesman declined yesterday to say how many jobs might be eliminated worldwide or in Massachusetts.
In addition, Boston Scientific said it is considering selling its cardiac surgery, vascular surgery, and fluid management units. Biegelsen estimated the sales could yield $500 million to $600 million before taxes. It's unclear how much more Boston Scientific could raise by selling other investments.
Meantime, the company has racked up a number of expenses in recent months.
Last month, it agreed to pay $195 million to settle a class-action suit related to allegations that Guidant hid problems with implantable heart devices prior to being acquired. And earlier this month, the firm said it planned to take a $360 million after-tax charge to unwind a deal to acquire Advanced Bionics Corp. of Valencia, Calif., ending a legal dispute with the firm's top executive, Alfred E. Mann. Boston Scientific agreed to pay Mann $1.15 billion in cash.
Todd Wallack can be reached at twallack@globe.com. 