S&P puts Medtronic on watch

Standard & Poor’s said it placed all of its ratings, including its AA- corporate credit rating, on Medtronic Inc. on CreditWatch with negative implications.

The CreditWatch placement follows the announcement that Medtronic plans to acquire Covidien.

S&P said it estimates that the transaction would increase adjusted net leverage to about 2.1x-2.2x, which is considerably higher than current levels of about 0.7x.

“The proposed transaction strengthens Medtronic’s scale, product diversity, and market position, and could represent an additional competitive advantage for the company, offset by a considerable increase in financial risk,” said S&P credit analyst David Kaplan in a news release.

“We estimate the reduction in Medtronic’s cash, combined with the Covidien debt being assumed, and the additional debt to be issued would increase Medtronic’s pro forma adjusted net leverage to about 2x-2.2x at close, from about 0.7x.”

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