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Rating Action:

MOODY'S CONFIRMS WYETH'S RATINGS (SR. AT A3); OUTLOOK CHANGED TO NEGATIVE

23 May 2003
MOODY'S CONFIRMS WYETH'S RATINGS (SR. AT A3); OUTLOOK CHANGED TO NEGATIVE

Approximately $7 Billion of Debt Securities Affected.

New York, May 23, 2003 -- Moody's Investors Service confirmed Wyeth's A3 senior unsecured rating and Prime-2 short term rating. The rating outlook has been changed to negative from stable.

Confirmation of the ratings reflects Moody's opinion that, in the most likely case, any increase in reserves for forthcoming diet drug litigation should be moderately sized. It also reflects recent improvements to Wyeth's balance sheet and liquidity resulting primarily from the liquidation of Wyeth's Amgen shares.

The negative outlook, however, reflects the significant new uncertainty stemming from the higher-than-expected number of intermediate and back end opt outs, as well as claimants filing for matrix level payments from the settlement trust. Currently, Moody's cannot rule out the potential for a large reserve increase, which could stress Wyeth's cash flow relative to debt, and result in downward rating pressure. Moody's notes that Wyeth's operating cash flow has decreased largely as a result of lower Premarin and Prempro sales, which appear to be declining more than Moody's original expectations. Furthermore, even before considering litigation payments Wyeth's free cash flow has been constrained by high capital expenditures and dividends.

Wyeth recently announced that 70,000 intermediate opt out and 20,000 back end opt out forms had been received, and that there was a higher than anticipated number of matrix claim submissions to the national settlement trust. Moody's believes that greater uncertainty exists with respect to the opt outs, and that any substantial reserve increase is more likely to be attributable to the opt outs. Based on currently available information, it is difficult to estimate the number of intermediate or back end opt outs that meet the eligibility criteria and that may file valid lawsuits against Wyeth. In addition, Wyeth has not yet settled or litigated any of the intermediate or back end opt outs, so it is difficult to quantify the typical cost that is associated with any court verdicts or out-of-court settlements. With respect to matrix claims, Wyeth has reported that only a very small percentage of the claims that have been processed to date have been found valid, and new procedures require that 100% of the matrix claims will now be audited for eligibility, compared to 15% previously.

Moody's notes recent improvements to Wyeth's liquidity profile, including a significant reduction in commercial paper balances following liquidation of Amgen holdings and recent long term debt issuance, as well as renewed bank credit facilities totaling $2.7 billion. These improvements have provided Wyeth the flexibility to continue funding diet drug litigation outflows, which include payments into the National Settlement Trust, claim settlements, and legal fees. As of March 31, 2003, Wyeth reported $3.8 billion of cash, cash equivalents and short term marketable securities. This figure does not include approximately $910 million contributed to a security fund, established as collateral for Wyeth's obligations under the diet drug settlement. Moody's notes that a large portion of Wyeth's cash is located overseas and would be subject to taxation if repatriated. To date, Wyeth has generally funded its U.S. cash needs, including diet drug litigation payments, through debt issuance rather than repatriating its cash.

The following ratings were confirmed:

A3 senior unsecured rating for notes, debentures, industrial revenue bonds, pollution control bonds; (P)A3 shelf rating

Prime-2 commercial paper

VMIG 2 pollution control bonds

With $14.6 billion in 2002 revenues, Wyeth is a global pharmaceutical and health care company engaged in the discovery, development, manufacturing, and marketing of pharmaceuticals, vaccines, biotechnology products, and nonprescription medicines.

New York
Julia Turner
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael Levesque
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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