Novartis AG’s long-term credit rating was cut one grade by Moody’s Investors Service to Aa3 because the company is slow to pay down debt from its 2010 acquisition of a majority stake in Alcon Inc.
The firm raised the drugmaker’s outlook to stable from negative and left the Prime-1 short-term ratings unchanged, Moody’s said in statement today.
By the end of 2012, Novartis had not paid down enough of its debt to merit an Aa2 rating, mainly because the company spent about $5 billion to buy back shares, Moody’s said. Novartis probably won’t be able to raise its rating in 2013 because it faces patent expiries, costs linked to manufacturing setbacks at its Lincoln, Nebraska, site and unusually high investments in plants and equipment.
“Moody’s views Novartis as being solidly positioned at Aa3, leaving the company with leeway to make bolt-on acquisitions,” Moody’s said in the statement. “The stable outlook reflects Moody’s expectation that, despite some decline in profits and cash flows in 2013, these will resume growth in 2014.”
A Novartis spokesman didn’t immediately reply to a request for comment.