Investing.com -- S&P Global Ratings has upgraded the credit rating of Insulet Corp (NASDAQ:PODD)., the manufacturer of insulin delivery devices, from ’BB-’ to ’BB’ on the back of strong operating performance and expected deleveraging. The rating agency also raised the issue-level rating on Insulet’s senior secured debt from ’BB’ to ’BB+’ and assigned a ’B+’ issue-level rating to the company’s proposed $450 million of unsecured notes due 2033.
The upgrade follows Insulet’s plans to issue $450 million of unsecured notes, increase its revolving credit facility from $300 million to $500 million, and extend its maturity from 2028 to 2030. The company intends to use the proceeds from these transactions, along with balance sheet cash and the proceeds from the unwinding of a capped call on its convertible notes, to repay its $800 million 0.375% convertible notes due 2026.
These actions, coupled with Insulet’s continued strong performance, are expected to reduce the company’s debt to EBITDA ratio to about 1.8x by the end of 2025, down from 3.1x in 2024. The company’s management also indicated a long-term gross leverage target of less than 3x.
The upgrade reflects the company’s commitment to maintain a gross leverage of below 3x and its robust earnings expansion. Insulet reported a 22% increase in full-year 2024 revenue and a 33% increase in EBITDA, year over year. The company anticipates continued strong growth, supported by increased adoption of its flagship product, the Omnipod 5, as more patients transition to automated insulin delivery (AID) from multiple daily injections.
Insulet has increased its customer base to around 500,000 active customers as of year-end 2024. The company’s growth trajectory is expected to remain solid in both the type 1 and type 2 diabetes markets, with the latter ramping up because its Omnipod 5 AID system is the first to be indicated for type 2 patients in the U.S.
Despite potential margin pressures from the imposition of tariffs, Insulet is projected to generate solid free operating cash flow (FOCF) to debt in the 28%-30% range in 2025. The company’s large cash balance, which stands at $607 million pro forma for the convertible note repayment, is expected to provide a cushion against unexpected headwinds and fund acquisitions.
The stable outlook reflects S&P Global Ratings’ expectation that Insulet will maintain a debt to EBITDA ratio of less than 3x and FOCF to debt of more than 20% over at least the next 12-18 months. However, the rating could be lowered if the company’s operating performance deteriorates or if it adopts a more aggressive expansion strategy resulting in higher leverage. A rating upgrade, although unlikely in the near term, could occur if the company adopts more conservative financial policies and significantly improves its business diversity.
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