Moody's rates Eli Lilly loan Aa3

Moody's Investors Service said it affirmed Eli Lilly and Co.'s issuer rating, industrial revenue bonds, senior unsecured bonds and bank credit facility at Aa3 and commercial paper at Prime-1. The agency also assigned an Aa3 rating to the company' $1.2 billion bank credit facility.

The outlook is stable.

The affirmation follows the company's announcement that it will acquire ICOS Corp. for $2.1 billion. The affirmation reflects Moody's belief that the acquisition will be cash flow accretive based on the recent performance of ICOS and the Lilly ICOS joint venture, a good outlook for rising Cialis sales and expense savings; Lilly's recent debt repayment of $1.6 billion; and the expectation that Lilly's ratings will improve to A1. A recent stabilization of Zyprexa prescriptions and continued growth of Cymbalta further support the affirmation.

The agency said it assumes that if the acquisition is initially funded with commercial paper, then Lilly will term out these borrowings beginning in early 2007. Otherwise, Moody's may become uncomfortable with the ongoing refinancing risk associated with a high level of commercial paper borrowings, based on various event risks faced by the company including the pending appellate court decision on the Zyprexa patent, initially ruled in Lilly's favor; Zyprexa product safety litigation; and other industry-wide risks including pipeline setbacks, litigation, manufacturing compliance and product safety issues.

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