Moody's Affirms Pfizer's (PFE) Ratings Amid Decision Not to Split Company

September 26, 2016 2:12 PM EDT

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Moody's Investors Service ("Moody's") affirmed the ratings of Pfizer Inc. (NYSE: PFE) and related subsidiaries, including the A1 senior unsecured long-term rating and the Prime-1 commercial paper rating. At the same time, Moody's revised the rating outlook to stable from negative. This rating action follows the announcement that Pfizer will not pursue a split of its pharmaceutical business.

"Pfizer's decision to keep the business whole removes a key overhang to the credit profile because a split had credit negative implications," stated Michael Levesque, Moody's Senior Vice President.

"The stable rating outlook reflects Pfizer's solid earnings trends for the next several years, and long-term growth opportunities from the acquisitions of Medivation and Anacor," continued Levesque.

The following ratings were affirmed:

Issuer: Pfizer Inc.

Issuer Rating at A1

Senior Unsecured Bank Credit Facility at A1

Senior Unsecured Commercial Paper at Prime-1

Senior Unsecured Regular Bond/Debenture at A1

Issuer: Pharmacia Corporation (Old Monsanto)

Backed Senior Unsecured Regular Bond/Debenture at A1

Issuer: Puerto Rico Ind Med & Env Poll Ctl Fac Fin Auth

Backed Senior Unsecured Revenue Bonds at A1

Issuer: Wyeth

Backed Senior Unsecured Regular Bond/Debentures at A1

The outlook on the long term ratings is revised to stable from negative.

RATINGS RATIONALE

Pfizer's A1 senior unsecured rating reflects its position as one of the world's largest pharmaceutical companies, its strong diversity, its high profitability, and its strong cash flow. Pfizer's has a conservative capital structure, with over $20 billion of cash and investments post-Medivation, and gross debt/EBITDA of about 2.2x. Key branded products like Eliquis and Lyrica will continue to grow, as will Medivation's prostate cancer drug Xtandi and Pfizer's recently launched cancer drug Ibrance. Including the impact of products facing generic competition, Pfizer will grow earnings in the low single digits. The A1 rating reflects Moody's expectation that Pfizer will sustain positive underlying revenue and earnings growth, solid credit ratios including debt/EBITDA close to 2x, and very large cash holdings.

Tempering these strengths, Pfizer's growth will lag that of industry peers. This is because a number of its products are no longer patent-protected and are declining in most markets, despite growth in emerging markets. These drugs, generally comprising the Global Established Products unit, will be a drag on Pfizer's aggregate growth. The approaching US patent expiration of Lyrica in December 2018 will add a further growth pressure in 2019. Despite the long-term opportunities associated with the Anacor and Medivation acquisitions, there remains ongoing event risk associated with acquisitions. Pfizer's willingness to fund future acquisitions with existing cash instead of debt issuance is uncertain and will likely depend on tax implications.

The stable outlook reflects solid underlying growth for the next several years, and the expectation that financial leverage will not materially increase.

The ratings could be upgraded if Pfizer sustains solid top-line growth, and key credit ratios are sustained at very strong levels including CFO/debt above 50% and debt/EBITDA below 1.5 times. Conversely, the ratings could be downgraded if there are significant pipeline setbacks, if Pfizer makes large debt-funded acquisitions or share repurchases, or if debt/EBITDA is sustained materially above 2.0 times.



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