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Rating Action:

MOODY'S PLACES AMERISOURCEBERGEN'S RATINGS (SR. IMPLIED AT Ba2) UNDER REVIEW FOR POSSIBLE UPGRADE

10 Dec 2004
MOODY'S PLACES AMERISOURCEBERGEN'S RATINGS (SR. IMPLIED AT Ba2) UNDER REVIEW FOR POSSIBLE UPGRADE

Approximately $1 billion in Rated Debt Affected

New York, December 10, 2004 -- Moody's Investors Service placed the ratings of AmerisourceBergen Corporation (ABC) (Ba2 senior implied) under review for possible upgrade due to continued debt reduction, reduced reliance on external liquidity sources and expectations of good free cash flow generation relative to debt. Moody's believes that improved financial flexibility - achieved through sustained debt reduction - would help to offset the transition to a new business model and the loss of two key contracts. Further, the establishment of a new unsecured bank facility will be considered in this review.

Moody's affirmed ABC's SGL-2 speculative grade liquidity rating. In addition to withdrawing the rating on Bergen Brunswig's TOPrS, which were redeemed earlier this year, Moody's is withdrawing the rating on the company's old credit facility. Moody's has not rated the company's new credit facilities.

Ratings placed under review for possible upgrade:

AmerisourceBergen Corporation: Ba3 senior unsecured notes; Ba3 issuer rating; Ba2 senior implied rating.

Amerisource Health Corporation: B1, 5% convertible subordinated notes, due 2007.

Ratings withdrawn:

AmerisourceBergen Corporation: Ba1 secured bank facility rating.

Bergen Brunswig Corporation: B1, 7.8% Trust Originated Preferred Securities (TOPrS), due 2039.

Rating affirmed:

AmerisourceBergen Corporation: SGL-2 speculative grade liquidity rating.

The rating review is supported by ABC's recent announcement that it has repaid its $180 million secured bank term loan and is redeeming its 5% convertible debt, which follows $300 million of debt reduction earlier this year.

Under ABC's previous secured bank credit facility, the secured bank lenders benefited from their security in a significant amount of assets of the company - primarily in the form of inventory. This resulted in secured bank debt being notched upward from the senior implied rating and the unsecured note holders being notched below the senior implied rating.

Moody's review will consider: (1) the sustainability of lower debt levels given the potential for more share buybacks and acquisitions as the company achieves greater flexibility with new bank facility; (2) the likelihood that convertible debt will be redeemed with equity; (3) the effects of a changing business model; (4) the effects of the recent loss of several large contracts; and (5) the notching implications associated with the removal of secured debt from the company's capital structure.

The affirmation of the SGL-2 rating reflects Moody's updated assessment of ABC's near-term liquidity position, recognizing the company's significantly reduced reliance on external sources of liquidity, good operating cash flow generation, anticipated future debt reduction and a solid near-term covenant compliance cushion. Although these factors are offset to some extent by lower free cash flow due to temporarily higher capital spending, the recent loss of two key contracts, a share buyback program and uncertainty associated with a new business model, the company is expected to have a good level of liquidity over the next 12 months.

AmerisourceBergen Corporation, headquartered in Valley Forge, PA, is one of the nation's leading wholesale distributors of pharmaceutical products and related services.

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

New York
Diana Lee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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