Moody's downgrades Medtronic

Moody's Investors Service said it downgraded Medtronic, Inc.'s senior ratings to A3 from A2 following the announcement that Medtronic plc, the new parent entity based in Ireland, has closed on its acquisition of Covidien plc. This concludes the review that began on Oct. 3, and the outlook for Medtronic is negative.

"Following its acquisition of Covidien, Medtronic's A3 rating reflects its large scale and diversification, tempered by a strong commitment to shareholders and relatively high gross debt levels," Diana Lee, a Moody's senior credit officer, said in an agency news release.

Moody's believes that Medtronic is committed to deleveraging and that management will target and take steps to maintain a rating in the broad single A category. As a result, the agency expects Medtronic's ratio of debt to EBITDA to be around 3 times within two to three years after the transaction closes and that the company will continue to deleverage thereafter.

The agency said the negative outlook reflects challenges Medtronic will face in deleveraging, including limited free cash flow after funding shareholder commitments, the potential for additional M&A and headwinds in the health-care environment such as pricing pressure and weak hospital utilization trends.

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