Fitch Rates Agilent Technologies' Proposed $500MM Senior Unsecured Notes 'BBB'.

CHICAGO -- Fitch rates Agilent Technologies, Inc.'s (Agilent) (NYSE: A) proposed $500 million of senior unsecured notes at 'BBB'. In addition, Fitch affirms the following ratings for Agilent:

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

--Senior unsecured revolving credit facility (RCF) at 'BBB';

--Existing senior unsecured notes at 'BBB'.

Approximately $1.4 billion of debt, pro forma for the $500 million issuance, is affected by Fitch's action, including a $330 million RCF expiring 2012, the borrowing capacity of which was increased by $30 million from $300 million on Sept. 8, 2009. The Rating Outlook is Stable.

Net proceeds will be used for general corporate purposes, although Fitch anticipates the cash will be earmarked to fund the pending $1.5 billion cash acquisition of Varian Inc. The ratings and Outlook contemplate the acquisition being financed with a combination of debt and cash,

given that cash and cash equivalents was approximately $1.6 billion as of July 31, 2009, pro forma for the combination.

The Varian transaction is expected to close by the end of this calendar year and is subject to approval by Varian shareholders, as well as customary closing conditions and regulatory approvals. Upon the consummation of the acquisition, Fitch believes Agilent will be the leading player within its bio-analytical businesses. Fitch believes there are integration risks with the Varian acquisition, given the target's size and necessary restructuring, which may slow the pace of meaningful improvements to Agilent's operating results.

Current expectations are for the company to maintain pro forma total leverage (total debt excluding the $1.5 billion of preferred shares repurchase obligation of Agilent Technologies World Trade, Inc. [World Trade debt] to operating EBITDA) below 2.0 times (x) which assumes the use of cash on hand to partially fund the acquisition with interest coverage (operating EBITDA to interest expense) well in excess of 6x. However, if the company chooses to finance 100% of the acquisition with debt, Fitch estimates that pro forma total leverage would rise to 2.0x to 2.5x for the full fiscal year 2009 ending Oct. 31, 2009. Longer term, the ratings incorporate the company maintaining total leverage at or below 2.5x given the current operating profile.

Fitch continues to believe that the failure of Agilent to return to more robust annual free cash flow could result in negative rating actions, given:

--that a substantial amount of Agilent's cash is located and generated overseas; and

--Fitch's belief that the $1.5 billion of World Trade debt, which matures in January 2011, could be at least partially refinanced with more traditional unsecured debt. The company has approximately $1.6 billion of restricted cash held by Agilent Technologies (Cayco) Limited associated with the World Trade debt that would need to be repatriated to the United States before satisfying any portion of this repurchase obligation not refinanced.

Fitch does not believe that positive rating actions are likely over the near term, given the current operating environment, integration risks associated with Varian, and intermediate-term uncertainty around share repurchases and the World Trade debt.

Fitch believes Agilent's liquidity as of July 31, 2009 was sufficient and supported by: i) approximately $1.5 billion of unrestricted cash and cash equivalents (excludes approximately $1.6 billion of restricted cash related to the aforementioned Agilent World Trade repurchase obligation) and ii) an undrawn $330 million RCF expiring May 11, 2012, which includes a $170 million accordion feature. Agilent's liquidity also is supported by expectations that the company will generate annual free cash flow of more than $100 million in fiscal year 2009, but in excess of $500 million in each of fiscal year 2010 and 2011. The ratings and Outlook incorporate Fitch's expectations that meaningful share repurchase and acquisition activity is unlikely over at least the near term. Total debt, pro forma for the proposed debt issuance, was approximately $2.6 billion as of April 30, 2009 and consisted of the aforementioned World Trade debt due 2011, $600 million of 6.5% senior unsecured notes due 2017, and the proposed $500 million of senior notes.

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.