MOODY'S REVIEWS AHP'S PRIME-1 COMMERCIAL PAPER RATING FOR POSSIBLE DOWNGRADE; CHANGES REVIEW STATUS OF A2 LONG TERM RATINGS TO DIRECTION UNCERTAIN
Moody's Investors Service said it placed American Home Product's (AHP) Prime-1 rating for commercial paper on review for possible downgrade and changed the review status of AHP's A2 ratings to direction uncertain, from possible upgrade. These actions reflect a heightened level of uncertainty, in Moody's opinion, regarding the ultimate scale of the liability associated with fen-phen diet drug litigation. The initial review of AHP's long term ratings commenced November 4, 1999 when AHP and Warner-Lambert (WL) announced their plans to merge.
Meanwhile, the review status of the Aa3 ratings on Warner Lambert's long term debt is unchanged; WL's ratings might be upgraded or downgraded, depending on whether it is acquired by or merged with Pfizer or AHP, respectively.
The recent jury decision in Mississippi against AHP and the related settlement involving 1400 litigants in that state raises questions, in Moody's opinion, as to the ultimate level of participation by claimants in the fen-phen litigation settlement. Additional cases are expected to go to trial in various states in the next few weeks and months. Others who took the drug combination may also choose to sue AHP instead of participating in the settlement by opting-out; the first opt-out period is underway and extends through March 31, 2000. Moody's believes that a high number of opt-outs in combination with additional adverse jury decisions would likely heighten the uncertainty regarding the ultimate scale of the total fen-phen liability to AHP. A high number of opt-outs also potentially jeopardizes the viability of the settlement, Moody's added.
Separately, hearing dates have been set in the Delaware courts in February and March aimed at resolving the legal dispute between AHP, WL and Pfizer and to determine whether Pfizer can proceed with its consent solicitation and takeover of WL. At the core of the dispute are allegations associated with the terms of the co-marketing agreement between Pfizer and WL for WL's blockbuster Lipitor cholesterol drug.
As mentioned, Moody's initially placed AHP's ratings under review for possible upgrade November 4, 1999. Under the scenario where the AHP/ WL merger is successful and the concern over the opt-outs and settlement meaningfully dissipate, an upgrade of AHP's ratings would be possible, hence the characterization of the ongoing review by Moody's as direction uncertain.
Moody's said its review will focus on the level of participation in the fen-phen settlement, the results of several upcoming trials involving fen-phen, and the outcome of the court hearings in Delaware involving Warner-Lambert, AHP and Pfizer.
American Home Products Corporation, headquartered in Madison, New Jersey, is one of the world's largest pharmaceutical and health care products companies.
Warner-Lambert Company, based in Morris Plains, New Jersey, is a diversified producer of pharmaceutical, consumer health care, and confectionery products.
Headquartered in New York City, Pfizer Inc. is one of the top-ranking global pharmaceutical companies.
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