S&P ups AmeriSource-Bergen

Standard & Poor's raised the ratings of AmeriSource-Bergen Corp., including the 5% convertible due 2007 to BB- from B+, based on continued solid operating progress and improved credit measures.

The outlook remains positive.

Ratings reflect participation in the growing but fiercely competitive drug wholesaling industry, a short track record of performance at current levels and challenges of synergies in the AmeriSource Health Corp. and Bergen Brunswig Corp. merger in August 2001.

These factors are mitigated by improved scale and diversity, progress in deleveraging its balance sheet and satisfactory cash flow protection.

EBITDA coverage of interest was a solid 6.2x for the last 12 months ended March 31, reflecting earlier-than-expected merger synergies, improved working capital management and wider operating margins, S&P said.

Free cash flow generated from more efficient use of working capital and earnings growth should enable the company to repay debt at a moderate pace over the coming year.

The company has a $1 billion revolving credit facility and a $300 million term loan, both due August 2006. The company also maintains two accounts receivable facilities totaling $1.1 billion.

Liquidity is satisfactory, with cash, inventory and accounts receivable comprising about 75% of assets. The revolving credit and accounts receivable facilities help fund seasonal working capital needs. The debt maturity schedule should be manageable given good cash flow generation.

AmeriSource-Bergen could achieve an investment-grade rating in the next year or two if the company continues to grow operating income, extends its performance record and current credit protection measures are maintained or modestly improved.

Moody's confirms Allergan

Moody's Investors Service confirmed the ratings of Allergan Inc., including the senior convertible notes at A3 and convertible subordinated notes at Baa1, on its purchase option to acquire product rights licensed to Bardeen Sciences Co. for $260 million in cash. The outlook is positive.

Confirmation reflects solid liquidity and a healthy balance sheet, an expected improvement in earnings quality as a result of funding additional research and development expenses with internal funds, rather than with Bardeen revenues and some vulnerability to product concentration, Moody's said.

The outlook reflects the potential for an upgrade over time if higher product sales result in improved cash flow relative to debt metrics.

The potential for an upgrade has been delayed somewhat by the expected $260 million cash outflow associated with Bardeen, which comes on the heels of Allergan's payment in late 2002 to Pharmacia Corp. for $120 million (pre-tax) related to patent litigation. In addition, 2002 cash flow from continuing operations was weaker than historical levels.

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