Covidien International Finance S.A. — Moody’s affirms Medtronic’s A3 senior unsecured rating

Rating Action: Moody’s affirms Medtronic’s A3 senior unsecured ratingGlobal Credit Research – 23 Mar 2022New York, March 23, 2022 — Moody’s Investors Service (« Moody’s ») affirmed the ratings of the rated subsidiaries of Medtronic plc (« Medtronic »). The ratings affirmed include the A3 senior unsecured rating of Medtronic Global Holdings S.C.A., Medtronic, Inc., and Covidien International Finance S.A. Medtronic Global Holdings S.C.A.’s Prime-2 commercial paper rating was also affirmed. The outlook for all three entities remains stable.The affirmation reflects Moody’s expectations that Medtronic will continue to benefit from its position as one of the world’s largest medical device companies. The affirmation also reflects Medtronic’s excellent liquidity profile with more than $11 billion of cash and short-term investments and Moody’s expectations that Medtronic will maintain low financial leverage.The following rating actions were taken:Affirmations:..Issuer: Medtronic Global Holdings S.C.A…..Gtd Senior Unsecured Commercial Paper, Affirmed P-2….Gtd Senior Unsecured Regular Bond/Debenture, Affirmed A3..Issuer: Medtronic, Inc…..Senior Unsecured Regular Bond/Debenture, Affirmed A3..Issuer: Covidien International Finance S.A…..Gtd Senior Unsecured Regular Bond/Debenture, Affirmed A3Outlook Actions:..Issuer: Medtronic Global Holdings S.C.A. ….Outlook, Remains Stable ..Issuer: Medtronic, Inc. ….Outlook, Remains Stable ..Issuer: Covidien International Finance S.A…..Outlook, Remains StableRATINGS RATIONALEMedtronic’s A3 rating reflects its position as one of the world’s largest medical device companies with revenue exceeding $31 billion. Medtronic also has sizable franchises in its Cardiology, Neuroscience, Diabetes, and Medical Surgical portfolios. Each operating unit is highly diversified and amongst the market leaders. Medtronic also benefits from its significant global presence with almost half of its revenue outside the US, and 18% of revenue in emerging markets. Moody’s expects the company to maintain low financial leverage with debt/EBITDA maintained in the high two times range. The rating also reflects the company’s excellent liquidity with approximately $11 billion of cash and short term investments which provides Medtronic with significant financial flexibility. Medtronic’s ratings are constrained by industry-wide challenges including customer pricing pressure and soft hospital utilization trends as well as payors’ increased focus on value-based healthcare. The company’s ratings are also constrained by its commitment to significant shareholder distributions and Moody’s expectation that the company will remain acquisitive or consider other portfolio management strategies.The outlook is stable. Moody’s expects Medtronic will maintain low financial leverage in the high two times range and earnings will largely remain stable even with continued challenges from potential coronavirus variants and global supply chain challenges.ESG considerations are a factor in Medtronic’s ratings. Medical device companies face moderate social risk. However, they regularly encounter elevated elements of social risk, including responsible production as well as other social and demographic trends. Risks associated with responsible production include compliance with regulatory requirements for safety of medical devices as well as adverse reputational risks arising from recalls, safety issues or product liability litigation. Most recently, in June 2021, Medtronic announced it would stop the distribution and sale of its HeartWare Ventricular assist devices (HVAD) following a Class I recall (the most serious type issued by the FDA). As of January 28, 2022 the company had approximately $0.3 billion of accrued litigation charges. With respect to governance while Medtronic does not have a public leverage target it has a long track record of maintain low leverage with some temporary increases related to acquisition. The company has a commitment to return at least 50% of free cash flow to shareholders via dividends and opportunistic share repurchase.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if the company is able to demonstrate continued revenue and earnings growth. Ratings could also be upgraded if the company exhibits successful execution of ongoing operating cost savings initiatives. Quantitatively, ratings could be upgraded if debt/EBITDA is sustained below 2.5 times.Ratings could be downgraded if the company were to experience weakness in earnings, increasing litigation risks or rising challenges from supply chain challenges. Ratings could also be downgraded if the company pursues more aggressive financial policies. Quantitatively, ratings could be downgraded if debt/EBITDA is expected to be sustained above 3 times.Medtronic plc (the parent holding company for Medtronic, Inc. and its subsidiaries) is one of the global leaders in the medical device industry, participating in several high technology segments of the market. These include cardiology, medical surgical, diabetes, and neuroscience. Revenue exceeded $31 billion in the last 12 month period ended January 28, 2022.The principal methodology used in these ratings was Medical Products and Devices published in October 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1278812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Scott Tuhy Senior Vice President Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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