CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings for St. Jude Medical, Inc. (STJ):

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

--Senior unsecured bank debt at 'A';

--Senior unsecured debt at 'A';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

The ratings apply to approximately $1.94 billion of debt. The Rating Outlook is Stable.

The ratings are supported by Fitch's expectation that STJ will generate consistent, profitable growth with near-term margin pressure expected to stabilize within the next six to 12 months. As such, Fitch expects STJ to produce reliable growth in free cash flow, which should be sufficient to fund targeted acquisitions and share repurchases.

STJ's four business segments (Cardiac Rhythm Management, Cardiovascular, Atrial Fibrillation and Neuromodulation) participate in sectors of health care that are expected to generate consistent long-term growth. Through a series of targeted acquisitions and internal developments, STJ has developed its business segments into enterprises that are expected to remain competitive in their respective market sectors for the foreseeable future.

While investments and a reform-related 2.3% excise tax (beginning in 2013) on U.S. device sales are expected to moderately pressure margins in the intermediate term, Fitch believes STJ's focus on cost reduction, tax optimization and the development of new value-added, higher margin devices will help mitigate this risk. Longer term, an improving sales mix and efficiency gains are expected to support incremental margin expansion. Revenue growth, margin support and manageable capital expenditure requirements should drive consistent cash flow growth, which Fitch expects will be preferentially deployed towards growth-related investments.

The recently enacted healthcare reform legislation is also expected to result in moderate volume increases in 2014-2016, when the bulk of the increase in the number of insured is expected to occur. While the final rules and regulations have yet to be written for the reform legislation, Fitch believes healthcare reform will not affect STJ's credit rating.

Fitch expects STJ to remain acquisitive, focusing on targets or products that offer innovation and growth, as technological advancement in the device sector is still relatively fragmented. Share repurchases are also expected to continue, especially in the absence of viable acquisition targets. In the intermediate term, Fitch expects STJ will operate with leverage (total debt/EBITDA) ranging between 1.0 times (x) to 1.2 x. Should STJ complete a large strategic acquisition, near-term leverage could well exceed its normal range, but Fitch believes the company would subsequently reduce leverage in a timely fashion. In 2010, Fitch expects STJ will generate $590 million to $650 million in free cash flow (FCF).

At the end of first quarter 2010, on March 30, 2010, STJ had approximately $530 million in cash plus short-term marketable securities and full availability on its $1 billion bank revolving credit facility, which expires on Dec. 13, 2011. Additionally, STJ had approximately $1.94 billion in debt with approximately $225 million maturing or amortizing in 2010, $70 million in 2011, $450 million in 2012 and $700 million in 2013. Subsequent to March 30, 2010, STJ refinanced the $225 million notes maturing in 2010 with approximately $309 million of yen-based, seven- and 10-year notes.

As of first quarter 2010, latest 12 months (LTM) selected credit metrics were as follows:

--Interest coverage (EBITDA/interest) was 26.8x;

--Leverage was 1.23x;

--Total debt/FCF was 3.2x;

--Net debt was $1,406 million;

--FCF was $607 million.

These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports:

--'Corporate Rating Methodology' (Nov. 24, 2009);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Additional information is available at www.fitchratings.com.

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CONTACT:

Fitch Ratings, Chicago
Bob Kirby, +1-312-368-3147
Michael Zbinovec, +1-312-368-3164
or
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

KEYWORDS:   United States  North America  New York

INDUSTRY KEYWORDS:   Health  Hospitals  Professional Services  Banking  Finance

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