Wednesday, March 11, 2009

Pfizer Downgraded From Aa1 to Aa2 by Moody's

And the rating agency continues its review. Seems Moody's is mostly worried about the Wyeth deal (downgrade to A1 certainty upon closure) and upcoming patent expirations:
Moody's affirmed Pfizer's Prime-1 short-term rating. This rating action reflects some deterioration in Pfizer's stand-alone credit quality based primarily on the approaching Lipitor patent expiration. Moody's had already signaled this as a credit risk factor prior to the Wyeth merger announcement (discussed below), with a negative outlook on Pfizer's ratings since October 19, 2007.

Related to the pending Wyeth acquisition, Moody's placed Pfizer's long-term ratings under review for possible downgrade on January 26, 2009 at the time of the announcement. Moody's continues to anticipate that Pfizer's ratings will fall to A1 if the Wyeth acquisition closes according to the agreed-upon terms, and assuming that there are no significant and unforeseen changes in the credit profile of either Pfizer or Wyeth.

The downgrade of Pfizer's long-term rating also reflects Moody's view that Pfizer's stand-alone late-stage pipeline is relatively weak, exacerbated by two recent Phase III cancellations.

Offsetting positive factors include Pfizer's recent dividend reduction, which will boost free cash flow, as well as the flexibility provided by raising the effective tax rate. Although cash taxes will rise, Pfizer will derive significantly more flexibility over time to access its cash without facing additional tax consequences.
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