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Business Services Industry

Fitch Affirms Owens & Minor Inc.'s IDR at 'BBB-'; Outlook Stable

Business Wire, May 6, 2008

CHICAGO -- Fitch Ratings has affirmed Owens & Minor Inc's. (OMI) ratings as follows:

--Issuer Default Rating (IDR) at 'BBB-';

--Senior unsecured credit facility at 'BBB-';

--Senior unsecured debt at 'BBB-'.

The ratings action affects approximately $200 million of debt. The Rating Outlook is Stable.

Fitch's rating action reflects OMI's successful integration of the October 2006 acquisition of McKesson's acute-care distribution business. During the process, OMI focused on retaining customers and converting their business to OMI's operating platform. During the same time, the company also significantly reduced acquisition-related debt and leverage through strong operational efficiency and good working capital management.

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Fitch also expects opportunities for OMI to penetrate acquired and legacy accounts with value-added services. These services help customers operate more efficiently, while supporting OMI's customer retention and margins. Fairly reliable demand growth, efficient operations, and good working capital management and manageable capital expenditure needs should result in cash flow that will support ongoing operations, dividends and targeted acquisitions.

One rating concern is that Medicare recently proposed a 43% reduction in reimbursement rates for mail-order diabetic supplies, and OMI has modest exposure to this market and could experience incremental pressure on margins and profitability as a result. Additionally, OMI has managed through higher fuel costs through expense control, but the issue bears watching.

OMI generated approximately $275 million of free cash flow (cash flow from operations minus capital expenditures minus dividends) for the latest twelve months (LTM) ending March 31, 2008. OMI has manageable capital expenditure requirements which totaled roughly $28 million for LTM ending March 31, 2008, while dividends were approximately $29 million during the same period.

As of March 31, 2008, OMI had approximately $2.6 million in cash, $339 million availability (offset by approximately $11 million in letters of credit) under a $350 million revolver that expires in 2011. OMI has no outstanding balances on its revolver and no bond debt maturing until 2016. As of March 31, 2008, LTM interest coverage (EBITDA/interest) was 10.8 times (x) and leverage (total debt/EBITDA) was 1.0x or (Adjusted Debt/FFO) was 0.9x. EBITDA margin for LTM ending March 31, 2008 was 3.04% versus 2.27% for LTM ending March 31, 2007.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Business Services Industry

Fitch Affirms Owens & Minor Inc.'s IDR at 'BBB-'; Outlook Stable

Business Wire, May 6, 2008

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