Moody's downgrades McKesson

Moody's Investors Service said it lowered the debt ratings of McKesson Corp., including the senior unsecured rating to Baa3 from Baa2 and short-term rating to Prime-3 from Prime-2.

The outlook is stable.

Moody's said the rating action is based on: (1) uncertainty that higher operating and free cash flow can be sustained if working capital turns do not continue improving beyond current levels; (2) expectations of flat net income between fiscal 2004 and fiscal 2005 for the first time in several years; (3) ongoing changes in the drug distribution model that provide uncertainty; (4) lackluster performance of non-core drug distribution businesses; and (5) pending shareholder litigation.

More specifically, Moody's downgraded McKesson Corp.'s senior unsecured notes to Baa3 from Baa2, medium-term notes to Baa3 from Baa2, and junior subordinated notes to Ba1 from Baa3. Moody's also cut the industrial revenue bonds to Baa3 from Baa2.

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