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22 Nov 2005
MOODY'S AFFIRMS PFIZER INC.'S Aaa/PRIME-1 RATINGS; ASSIGNS Aaa/PRIME-1 RATING TO NEW $1 BILLION EXTENDIBLE NOTE OFFERING OF PFIZER INVESTMENT CAPITAL P.L.C. BASED ON GUARANTEE OF PFIZER INC.; NEGATIVE RATING OUTLOOK
New $1 Billion Extendible Note Offering
New York, November 22, 2005 -- Moody's Investors Service affirmed the Aaa/Prime-1 ratings
of Pfizer Inc. ("Pfizer") and the Prime-1 rating
of Pfizer Investment Capital p.l.c. ("PIC").
At the same time Moody's assigned a rating of Aaa/Prime-1
to the PIC's new $1 billion extendible note offering,
based on the unconditional guarantee from Pfizer. Previously,
Moody's had assigned only a Prime-1 rating to the short term
obligations of PIC, with a stable rating outlook. Now that
Moody's is assigning a long-term rating to PIC, the
rating outlook of PIC is being revised to negative from stable.
The rating outlook on Pfizer remains negative.
The new extendible note offering helps facilitate Pfizer's strategy
under the American Jobs Creation Act of 2004 ("AJCA").
Pfizer has announced plans to repatriate approximately $36.7
billion of foreign earnings. This new note offering, in combination
with PIC's commercial paper program, off-shore cash
and investments, should allow Pfizer to fund the repatriation.
The affirmation of Pfizer's Aaa/Prime-1 ratings reflects:
(1) Moody's belief that Pfizer is well positioned to maintain financial
flexibility consistent with the Aaa rating category specified in Moody's
Global Pharmaceutical Methodology -- specifically operating cash
flow to total debt of 75%, free cash flow to total debt of
40%, and adjusted cash and investments to total debt of 75%;
(2) significant flexibility with respect to discretionary share repurchases;
and (3) Pfizer's very strong new product pipeline. The strength
of Pfizer's late-stage pipeline is a key differentiating factor
compared to most other rated pharmaceutical companies, and helps
to offset concerns regarding Pfizer's high exposure to upcoming patent
The rating outlook on Pfizer Inc. is negative, however,
due to concerns that disappointing product sales, unfavorable outcomes
of patent litigation, or a shift towards more aggressive acquisitions
or share repurchases may cause Pfizer's metrics to fall below these
The rating affirmation also considers Pfizer's AJCA strategy,
and Moody's tolerance that Pfizer's year-end 2005 cash
flow to debt ratios may temporarily fall below the "Aaa" ranges
because of the AJCA-related debt issuance in 2005. However,
through strong off-shore cash flow generation, Moody's
expects that a large portion of the off-shore debt will be repaid
in 2006, and that Pfizer's ratios would be quickly restored
to the "Aaa" level. In addition, rapid reduction
of off-shore debt alleviates concern that structural subordination
will cause rating pressure on Pfizer's existing U.S.-based
debt. Moody's believes that greater access to cash and investments
will reduce the need for U.S. debt issuance in the future,
which might otherwise have resulted from U.S. cash flow
needs such as the shareholder dividend and share repurchases.
Pfizer continues to await a decision with respect to a Lipitor patent
litigation by Ranbaxy in the U.S. A recent court ruling
in the United Kingdom dealing with a Lipitor patent that expires in November
2011 (the "genus" patent) was decided in Pfizer's favor,
while the "species" patent expiring in June 2010 in the UK
was decided in Ranbaxy's favor. In the U.S.,
the critical patents being challenged by Ranbaxy expire in March 2010
(the "genus" patent) and June 2011 (the "species"
patent). The timing of a ruling by the Federal Court is difficult
to predict, but could occur by year-end. If the decision
is adverse to Pfizer, Moody's believes Ranbaxy would be unlikely
to launch its product "at risk" until an appellate court also
rules in its favor, which could potentially take another 12 months.
However, if the pending decision in the Federal Court is adverse
to Pfizer, a downgrade of one notch to Aa1 could occur, even
if Ranbaxy does not immediately launch its product. Further pressure
beyond the one notch downgrade could occur, depending on the appeals
process and the timing of a Ranbaxy launch. For example,
Moody's estimates that without Lipitor in the U.S.
in 2007, Pfizer's cash flow from operations and free cash
flow could decline by as much as $5 billion. Under this
scenario, it is conceivable that Pfizer's 2007 key credit
ratios could decline from the "Aaa" range in Moody's
methodology to the "A" range. As a result, a
multi-notch downgrade could ensue.
Moody's is maintaining a negative outlook on Pfizer's ratings.
While we believe it is likely that Pfizer will maintain a level of financial
flexibility consistent with the indicated ratios, several risk factors
could create deviations from our current expectations. In particular,
the forecast is very sensitive to the following: (1) projected sales
levels of several new products, including Caduet and Lyrica,
for which ultimate market acceptance is unclear; (2) earlier than
expected generic entrants or faster than expected sales erosion upon generic
competition; and (3) any disappointments related to late-stage
pipeline products. Finally, Moody's notes that Pfizer's financial
policies have been oriented to shareholders in the past, and a return
to larger share repurchases or other shareholder value initiatives might
ensue if Pfizer's share price does not reverse its downward trend.
Moreover, as Pfizer faces lower earnings growth this year relative
to high earnings growth in prior years, accelerating patent expirations
in 2006 and 2007, and greater access to its cash balances,
the likelihood of additional cash financed acquisitions may increase.
Over time, if the Lipitor patent rulings are favorable for Pfizer
and if Moody's becomes more confident that the specified ratios will be
readily attained and remain sustainable, the outlook on Pfizer's
Aaa rating is likely to stabilize.
Pfizer Inc. -- Aaa senior notes, Eurobonds,
medium term notes, industrial revenue bonds, revolving credit
facility and issuer rating; (P)Aaa shelf registration rating;
Prime-1 short term debt rating
Pfizer Investment Capital p.l.c. -- Prime-1
Warner-Lambert -- Aaa senior note rating
Pharmacia Corporation -- Aaa notes, medium term notes
and industrial revenue bonds
Pfizer Investment Capital p.l.c. -- Aaa/Prime-1
extendible note offering of $1 billion
Headquartered in New York, Pfizer Inc. is a global pharmaceutical
company that reported $52.5 billion of revenue for the year
ended December 31, 2004. Domiciled in Dublin, Ireland,
Pfizer Investment Capital p.lc. is a wholly-owned
indirect subsidiary of Pfizer Inc.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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