Moody's may downgrade Chattem

Moody's Investors Service said it placed Chattem Inc.'s Ba3 corporate family and probability-of-default ratings and B1 $108 million senior subordinated notes (LGD5, 76%) under review for possible downgrade after the company announced that it entered into an agreement to acquire the U.S. rights to five leading consumer and over-the-counter brands from Johnson & Johnson and the consumer health care business of Pfizer Inc. for $410 million in cash.

The review for downgrade reflects the potential for significantly increased leverage and weakened debt protection measures as a result of this likely all-debt financed acquisition, the agency said.

Moody's review will focus on the strategic value of the transaction to Chattem's existing portfolio of over-the-counter health care and consumer products, the potential for integration challenges Chattem may face given the added size and complexity the acquisition creates for the company, the prospect for incremental marketing and promotional expenditures for the acquired brands and he capital structure, financial flexibility and prospective debt protection measures should the transaction ultimately close.

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