Moody's affirms debt ratings on Merck

Moody's affirms debt ratings on Merck

	Published : Sat, 10 Nov 2007 07:25 By : Agencies Print this Story

NEW YORK (AP) - Moody's Investors Service affirmed the debt ratings on Merck & Co. and revised its rating outlook to 'developing' from 'negative' after the drug maker agreed to pay $4.85 billion in a major Vioxx settlement.

The agency's rating reiteration on Whitehouse Station, N.J.-based Merck includes the 'Aa3,' or high-quality investment-grade long-term debt rating and the Prime-1 short-term debt rating.

Earlier in the day, Merck said it agreed to a settlement to end thousands of state and federal lawsuits over its painkiller.

Moody's also noted the agreement stipulates that certain conditions be met before Merck pays the $4.85 billion into a settlement fund.

If the conditions are met and Merck's payment obligation is triggered, Moody's said it will likely raise Merck's rating outlook to stable. If the conditions are not met, the agency said it will likely maintain its negative rating outlook.

For now, the firm pegged the outlook at developing, which implies a rating may either be raised or lowered over the next six months to two years.

The agency said uncertainty surrounding Merck's Vioxx exposure has been the primary driver for the negative outlook, which means the agency sees at least a 40 percent chance its rating will move in a negative direction at some point over the next 18 months.

On the upside, the agency said the Vioxx agreement contains a number of characteristics that would help stabilize Merck's credit profile. Of those, Moody's pointed to the likelihood Merck will resolve the majority of the outstanding U.S. caseload in both federal and state courts at a cost well within Moody's expectations of the ultimate exposure.

Several Vioxx-related uncertainties may still remain, nonetheless, including the potential costs of resolving cases outside of the agreement, according to the agency. Other key risks include a series of blockbuster patent expirations affecting osteoporosis drug Fosamax in 2008.

Despite these and other risks, the Vioxx agreement would significantly reduce the uncertainty associated with Merck's ultimate Vioxx exposure and stabilize the company's credit rating, Moody's said.

Shares of Merck rose $1.19, or 2.2 percent, to $55.95 in afternoon trading.