Merck & Co., (MRK) guaranteed senior unsec. rating to A1 from Aa3 by Moody's
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Moody's Investors Service placed the long-term senior unsecured ratings of Merck & Co., Inc. ("Merck") under review for downgrade. At the same time, Moody's affirmed Merck's Prime-1 commercial paper rating. The rating review follows Merck's announcement that it will repurchase approximately $7.5 billion of its shares over the next 12 months, to be funded in part with new debt. The repurchases will be made under a newly authorized $15 billion share repurchase program. The review is also prompted by pressures facing Merck's business including a worse-than-expected impact from generic competition and moderating growth in the Januvia franchise.
Ratings placed under review for downgrade:
Merck & Co., Inc.
Aa3 senior unsecured notes and bonds (guaranteed by Merck Sharp & Dohme Corp.)
A1 senior unsecured notes and bonds (not guaranteed by Merck Sharp & Dohme Corp.)
Merck Sharp & Dohme Corp.
Aa3 senior unsecured debentures, notes, medium term notes and industrial revenue bonds
Ratings affirmed:
Merck & Co., Inc.
Prime-1 commercial paper
Merck Sharp & Dohme Corp.
VMIG-1 industrial revenue bonds
"Debt-financed share repurchases are outside our expectations for Merck's previously conservative financial policies and could result in a one-notch rating downgrade," stated Michael Levesque, Moody's Senior Vice President.
RATINGS RATIONALE
Merck's Aa3 rating reflects the company's strong competitive position in the global pharmaceutical industry, its excellent diversity, its high profitability and its strong cash flow. A key challenge for Merck will be to mitigate the ongoing earnings gap produced by the US patent expiration of Singulair and several other products with growth in newer products. The announcement of debt-financed share repurchases alters Moody's view of Merck's previously conservative financial policies. Although the exact pace and amount of debt issuance is not yet known, Moody's projects that Merck's debt/EBITDA will rise from 1.4 times currently to a range of 1.8 to 2.1 times over the next year, and that its CFO/debt will deteriorate from 50% to a range of 35% to 40%.
Moody's rating review will consider Merck's financial policies including the timing and pace of share repurchases, the amount of incremental debt that will be incurred, and the impact on credit metrics over the next several years. The review will also consider Merck's ability to replenish revenue being lost due to patent expirations with growth in new products, pipeline launches, and cost savings. Moody's anticipates that the downgrade, if any, would be limited to one notch.
Headquartered in Whitehouse Station, New Jersey, Merck & Co., Inc. ("Merck") is one of the five largest global pharmaceutical companies. Merck's 2012 revenues totaled $47.3 billion.
The principal methodology used in this rating was Global Pharmaceutical Industry published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Ratings placed under review for downgrade:
Merck & Co., Inc.
Aa3 senior unsecured notes and bonds (guaranteed by Merck Sharp & Dohme Corp.)
A1 senior unsecured notes and bonds (not guaranteed by Merck Sharp & Dohme Corp.)
Merck Sharp & Dohme Corp.
Aa3 senior unsecured debentures, notes, medium term notes and industrial revenue bonds
Ratings affirmed:
Merck & Co., Inc.
Prime-1 commercial paper
Merck Sharp & Dohme Corp.
VMIG-1 industrial revenue bonds
"Debt-financed share repurchases are outside our expectations for Merck's previously conservative financial policies and could result in a one-notch rating downgrade," stated Michael Levesque, Moody's Senior Vice President.
RATINGS RATIONALE
Merck's Aa3 rating reflects the company's strong competitive position in the global pharmaceutical industry, its excellent diversity, its high profitability and its strong cash flow. A key challenge for Merck will be to mitigate the ongoing earnings gap produced by the US patent expiration of Singulair and several other products with growth in newer products. The announcement of debt-financed share repurchases alters Moody's view of Merck's previously conservative financial policies. Although the exact pace and amount of debt issuance is not yet known, Moody's projects that Merck's debt/EBITDA will rise from 1.4 times currently to a range of 1.8 to 2.1 times over the next year, and that its CFO/debt will deteriorate from 50% to a range of 35% to 40%.
Moody's rating review will consider Merck's financial policies including the timing and pace of share repurchases, the amount of incremental debt that will be incurred, and the impact on credit metrics over the next several years. The review will also consider Merck's ability to replenish revenue being lost due to patent expirations with growth in new products, pipeline launches, and cost savings. Moody's anticipates that the downgrade, if any, would be limited to one notch.
Headquartered in Whitehouse Station, New Jersey, Merck & Co., Inc. ("Merck") is one of the five largest global pharmaceutical companies. Merck's 2012 revenues totaled $47.3 billion.
The principal methodology used in this rating was Global Pharmaceutical Industry published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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