Moody's may downgrade Schering-Plough

Moody's Investors Service said it placed Schering-Plough Corp.'s Baa1 senior unsecured notes and debentures and Baa3 preferred stock under review for possible downgrade and affirmed its Prime-2 short-term debt rating for commercial paper following the announcement that Schering-Plough has entered a transaction to acquire Organon Biosciences NV for $14.4 billion in cash.

The acquisition is expected to occur by the end of the year, and financing plans are expected to include a combination of cash, new debt and $3 billion to $5 billion of new equity.

The agency said that despite the strategic benefits of the transaction, the size of the Organon acquisition falls considerably outside Moody's earlier expectations for Schering-Plough. In addition, the agency expects the company's cash flow from operations-to-debt ratio, free cash flow-to-debt ratio and cash coverage of debt to deteriorate.

Conversely, factors that are expected to improve include the company's size and scale, revenue concentration in Top 3 and Top 5 products and the quality of the late-stage pharmaceutical pipeline.

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