Moody's rates Medco notes Baa3

Moody's Investors Service said it assigned Baa3 ratings to Medco Health Solutions' senior unsecured notes to be drawn from its universal shelf. Moody's affirmed Medco's Baa3 senior note ratings.

The outlook is stable.

Proceeds will be used to refinance bank borrowings associated with the acquisition of PolyMedica last October. Moody's said the transaction should help Medco maintain sufficient liquidity over the next 12 months.

"Medco's aggressive share buyback activity must be reigned-in beyond 2008 in order for the company to retain its investment grade rating," Diana Lee, a senior credit officer at Moody's, said in a written statement.

Ratings reflect the company's position as a leading independent pharmacy benefit manager with a sizable presence in the mail-order and specialty drug markets, the agency said.

Offsetting factors include possible shareholder friendly initiatives and some uncertainty about the upcoming expiration of Medco's largest customer contract with UnitedHealth Group, Moody's said. Expected changes to the industry's pricing benchmark also constrain ratings, the agency added.

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