Zimmer Biomet Holdings Inc. Outlook Revised To Negative On COVID-19-Related Risks To Operating Performance

Zimmer Biomet Holdings Inc. reduced its 2019 leverage to 3.3x, creating some additional capacity for underperformance within the rating. At the same time, Zimmer's portfolio is highly exposed to elective procedures, which introduces a significant risk to its 2020 operating performance given the likely deferral of many nonurgent procedures. We expect a large percentage of elective procedures, including elective orthopedic surgeries and many dental procedures in the U.S. and globally, to be deferred for at least a quarter or even longer, depending on the severity and duration of the pandemic. While the company has the capacity within the rating to withstand a moderate EBITDA decline, a more severe and prolonged pandemic could materially affect the company's operating performance and significantly

...Zimmer's operating performance and result in leverage sustained above 3.75x for a prolonged period of time. We could lower the rating if Zimmer's leverage increases materially above 3.75x in 2020 and if there are limited prospects for improvement below 3.75x in 2021, most likely because of the prolonged delay in the elective procedures globally. We could revise the outlook to stable if, despite the global headwinds, we become confident that the company will reduce leverage to, or below, 3.75x in 2021 as the current uncertainty regarding the coronavirus' impact on industry demand dissipates....

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