Fitch Affirms Merck Ratings but Downgrades Outlook
Fitch Ratings said Friday it's affirmed its ratings for Merck & Co., but downgraded its rating outlook for the world's third-biggest drugmaker to "Negative" from "Positive."
Fitch's ratings cover about $20.5 billion in outstanding Merck debt, including the drugmaker's long-term issuer default rating, which remains "A+," slightly below the top level of "AAA."
The Chicago ratings service said the negative outlook reflects its concern about how much money and how fast Merck will borrow to fund a new $15 billion stock repurchase plan announced Wednesday.
Merck plans to buy about $7.5 billion worth of its shares over the next 12 months and fund that partly with an unspecified amount of new debt.
That "will halt positive momentum the company gained through solid operational performance" as patents on lucrative drugs expired, Fitch said in a statement.
The patent expirations, particularly last August's end of the patent for top-seller Singulair for asthma and allergies, resulted in big drops in sales as patients defected to newly available, much-cheaper generic versions.
Fitch said that if Merck were to fund about $10 billion worth of the share repurchases by issuing new debt, that would increase the ratio of its debt to profit before items including taxes. In that case, Fitch likely would downgrade Merck's issuer default rating by a notch, to "A."
Fitch kept its ratings for Merck's senior unsecured debt and bank loans at "A+" and maintained top-level "F1" ratings for Merck's commercial paper and short-term issuer default.
It noted the Whitehouse Station, N.J., company has $6 billion of debt maturing from 2013 through 2015 and expects the drugmaker will refinance that.
Meanwhile, Moody's Investors Service said Wednesday that it's reviewing its Merck ratings for possible downgrade.
Like rival Fitch, Moody's cited "debt-financed share repurchases," saying they're not the norm for fiscally conservative Merck and could trigger a one-notch rating downgrade. Moody's also noted "pressures facing Merck's business, including a worse-than-expected impact from generic competition and moderating growth" for its popular pills for it Type 2 diabetes.
In afternoon trading, Merck shares dipped 19 cents to $45.54.