Moody's lowers Roche, keeps Genentech on review

Moody's Investors Service said it downgraded the long-term rating of Roche Holding AG to A2 from Aa1 following the company's successful tender offer for the remaining shares of Genentech, Inc.

This concludes the review for possible downgrade begun on July 21, 2008, and the outlook is stable.

At the same time, Genentech's A1 long-term rating remains under review for possible downgrade. The companies' Prime-1 short-term ratings were not on review and remain unchanged.

Moody's said it understands the strategic rationale behind the transaction, as Roche will obtain full control over Genentech's cash flows upon completion and the acquisition allows Roche to extract synergies while endeavoring to maintain Genentech's independency and research and development structure.

But in the agency's view, the positives gained from the transaction do not make up for the substantial weakening in Roche's credit metrics, including a significant increase in leverage.

Genentech will remain under review until the treatment of its bonds is confirmed.

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