Boston Scientific Corp will need to reduce its debt load and stem falling sales of key products to spur further improvement in its credit spreads, which rallied on Friday after the company said it is mulling asset sales that may be used to pay down debt.
The medical device manufacturer said late on Thursday that it is considering the sale of its heart and vascular surgery units. The move is part of the company's bid to sell non-core assets to bolster its operational and financial performance, Chief Executive Paul LaViolette said in a statement.
The cost to insure Boston Scientific's debt with credit default swaps fell to 260 basis points, or $260,000 per year for five years to insure $10 million in debt, from 327 basis points on Thursday, according to data by CMA DataVision. Swaps have widened from 72 basis points in the middle of June.
"These are modest asset sales and may provide a few drops of cash for debt reduction but won't change the weak outlook for the fundamentals," Gimme Credit analyst Carol Levenson via E-mail.
Moody's Investors Service cut the company to junk in July after it reported disappointing results for the second quarter. It posted lower-than-expected quarterly profit as sales of its flagship drug-eluting heart stents fell by 32 percent.
Weak fundamentals at Boston Scientific are also coupled with "the potential need to renegotiate its bank agreements later this year - maybe an even tougher task now than it was a couple of weeks ago," Levenson said.