Moody's affirms Novartis

Moody's Investors Service said it affirmed the Aaa long-term senior unsecured ratings of Novartis Corp. and Novartis Securities Investment Ltd. (guaranteed by Novartis AG) and the Prime-1 short term rating of Novartis Finance Corp.

This affirmation follows the announcement by Novartis that it offered to buy all of the remaining outstanding shares of Chiron that it does not own, representing 58% of the shares, while it already holds 42%, for a consideration of $4.5 billion based on a share price of $40.

Moody's estimates that despite the recent acquisitions in generics and before the contemplated transaction, Novartis has still some financial flexibility in its Aaa category for debt-financed acquisitions. This flexibility could make acceptable that the credit metrics fall temporarily into the A range of Moody's rating methodology (defined as operating cash-flow to adjusted debt of 40-50%, free cash-flow to adjusted debt of 25-30% and cash to adjusted debt of 50-60%) with a view to rapidly recover ratios in line with Moody's expectations for a Aaa company.

The Chiron transaction if fully financed in cash without equity component would expectedly use the financial flexibility of Novartis in the Aaa category and significantly weaken the position of Novartis in its rating category.

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