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Pfizer Loses Its Triple-A Credit Rating


The Triple-A credit rating is disappearing before our eyes. On Oct. 16, Standard & Poor’s yanked drug maker Pfizer’s (PFE) AAA-rating, the best rating the agency can give out to credit-worthy companies.

The move was no surprise. Pfizer sealed its fate when it launched its $66.9 billion acquisition of rival pharmaceutical firm Wyeth, a deal that was completed on Oct. 15. Buying Wyeth required borrowing $22.5 billion.

S&P credit analyst David Lugg said in a statement that Pfizer’s new, lower “AA” rating reflects:

… the challenge to realize earnings and cash flow benefits in light of pending patent expirations in the midst of a currently difficult market as well as the significant additional borrowings needed to fund the [Wyeth] acquisition.

As S&P’s managing direction Nicholas Riccio told me in March, the AAA credit rating is “almost extinct at this point in Corporate America.”

General Electric (GE) lost its triple-A rating in March. Only four firms still have S&P’s top credit rating: ExxonMobil (XOM), Johnson & Johnson (JNJ), Automatic Data Processing (ADP) and Microsoft (MSFT). In late 1994, 14 compaines had triple-A ratings.

It’s easy to blame the disappearance of the top rating on economic hard times. But it also reflects shifting priorities for CEOs, corporate boards and investors. Pfizer execs knew the Wyeth deal would hurt its sterling credit reputation, but they completed the deal anyway — obviously for strategic reasons they see as more important than the recommendation of the credit rating agencies.

(S&P, like BusinessWeek, is a unit of the McGraw-Hill Companies.)


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