Fitch Rates Quest Diagnostics Debt Offering 'BBB+'

Fitch Ratings has assigned a 'BBB+' rating to Quest Diagnostics, Inc. (Quest) proposed public issuance of $750 million of 10-year, and 30-year senior unsecured notes. Proceeds from the debt offering are expected to be used for general corporate purposes, including acquisitions, and to partially pay down outstanding long-term debt. Quest's credit ratings are as follows.

--Issuer Default Rating (IDR) 'BBB+';
--Senior unsecured debt rating 'BBB+';
--Bank loan rating 'BBB+';

The Rating Outlook is Stable.

The ratings reflect Quest's leadership in independent clinical testing laboratories with an approximate 15% share of a highly fragmented clinical diagnostic testing market. Clinical testing generates over 90% of the company's total revenues. Additionally, Quest reduced leverage (total debt-to-EBITDA) to 1.8 times (x) for the latest 12-month (LTM) period ending Sept. 30, 2009 from a high of 2.6x at the end of 2007, following a series of acquisitions in 2005 to 2007 including the $2 billion AmeriPath transaction. Some proceeds from the new debt are expected to be used to reduce term loan borrowings due in 2011 as well as to tender for senior unsecured debt maturing 2010 and 2011. The company currently faces $1.57 billion of debt maturing through 2012, comprising approximately $226 million in 2010, $780 million in 2011, and $560 million in 2012.

At the end of the third quarter, Quest had cash and equivalents of $247 million and full capacity under a $750 million revolving credit facility due May 31, 2012. The credit facility contains two financial covenants: leverage (total debt-to-EBITDA) of less than or equal to 3.25x, and interest coverage (EBITDA-to-cash interest) greater than or equal to 3.5x. In addition, Quest increased its receivables securitization facility during 2008 to $500 million from $375 million. There were $100 million of borrowings at the end of the third quarter after the company funded the $308 million NID legal settlement in April.

Free cash flow (FCF) generation is consistent and was $702.5 million for the LTM period ending Sept. 30, 2009, including the NID legal settlement. Historical FCF margins fall in the range of 9% to 10%, which Fitch expects to be maintained in the long term, excluding this year. Operating cash flow will be negatively affected in 2009 by the above-mentioned legal settlement and estimated lower-than-historical sales growth; however, Quest anticipates generating $900 million of operating cash flow during the year.

Additional information is available at ' www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' 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.