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Rating Action:

Moody's Assigns Baa2 to McKesson's new Euro and GBP Notes

Global Credit Research - 13 Feb 2017

New York, February 13, 2017 -- Moody's Investors Service, ("Moody's") assigned a Baa2 rating to McKesson Corporation's new Euro and GBP note offerings. All of McKesson's existing note and short term ratings remain unchanged. The company's rating outlook remains stable. Moody's understands that proceeds will be used largely to fund debt maturities. McKesson has $1.2 billion of notes maturing in March and a Euro 500 million note maturing in April.

Ratings assigned:

McKesson Corporation:

Euro senior unsecured notes at Baa2

GBP senior unsecured notes at Baa2

RATINGS RATIONALE

"Despite margin pressure from both customers and lower growth in drug prices, we believe McKesson's credit metrics will remain in line with our expectations for a Baa2 rating," said Diana Lee, a Moody's Senior Credit Officer.

McKesson's Baa2 rating reflects its significant revenue base and position as one of the nation's leading drug distributors. The rating also reflects relatively thin operating margins that are subject to pressure as well as relatively high customer concentration. McKesson will maintain moderate leverage, aided in part by its strong cash flow. However, recent acquisition activity and plans to eventually exit its information technology business will reduce McKesson's financial flexibility. The three largest US drug distributors -- including McKesson -- will benefit from arrangements with retail pharmacies to increase scale in purchasing generic drugs. McKesson's focus on retail pharmacies outside the US adds greater geographic and business line diversity, but also risks of operating in highly regulated markets.

The stable outlook reflects Moody's belief that McKesson will sustain moderate leverage, even if it loses its contract with Rite Aid. The outlook also reflects Moody's expectation that McKesson will pursue a prudent approach to funding future acquisitions because it will have less ability to take on additional debt at the current rating level. If the company engages in additional debt-financed acquisitions, loses a key customer, or does not improve profitability, the ratings could be downgraded. If Moody's believes that debt/EBITDA will be sustained above 2.5 times, the ratings could be downgraded. If McKesson can realize margin improvement, aided by synergies, and is able to sustain debt/EBITDA below 2.0 times, the ratings could be upgraded.

The principal methodology used in these ratings was that for the Distribution & Supply Chain Services Industry published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

McKesson Corporation, headquartered in San Francisco, California, is a leading drug distributor and a distributor of medical-surgical products to physician offices and other non-acute care settings. Its technology solutions business provides software and hardware support to hospitals, payors, physician offices and pharmacies. Celesio's drug distribution and retail pharmacy business operates in 13 countries.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Diana Lee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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