Fitch might cut Covidien

Fitch Ratings said it placed Covidien plc's ratings, including the A issuer default rating, on Rating Watch Negative.

The action follows the announcement that Covidien will be acquired by Medtronic, Inc. for total consideration of $42.9 billion. The ratings apply to $5 billion of Covidien's debt outstanding at March 28.

Medtronic is expected to assume Covidien's outstanding debt upon the close of the transaction, anticipated to occur in late 2014 or early 2015, pending regulatory approvals. Fitch expects that the use of significant equity funding and cash on hand will reduce the amount of debt needed to fund the transaction and defray the impact on leverage of the combined company.

However, pro forma leverage at the close is expected to be greater than the 1.5x level that is consistent with an A issuer default rating for Covidien.

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