Moody's rates Medtronic convertible A1

Moody's Investors Service said it affirmed Medtronic Inc.'s ratings following the announcement that the company will acquire all spine-related intellectual property and settle all outstanding disputes with Dr. Gary Michelson and Karlin Technology Inc. for $1.35 billion.

Moody's also assigned an A1 rating to Medtronic's $1.928 billion in new contingent convertible debentures due 2021. These notes were offered in conjunction with an exchange offer that expired on Jan. 21. Medtronic did not receive any proceeds from this exchange offer.

At the same time, Moody's assigned an A1 rating to Medtronic's $1 billion five-year credit facility due January 2010 and the upsized portion ($250 million) of the company's five-year credit facility due January 2007. The outlook is stable.

Medtronic has offered to exchange these contingent convertible notes for new notes to avoid share dilution under new accounting guidelines. Under terms of the new notes, any conversion or put must be satisfied with cash instead of equity. Moody's said it views this as a liquidity constraint. However, Moody's believes that a conversion scenario would be expected to occur at a time when Medtronic's stock price has increased and the company would likely have access to its bank facility. In addition, Medtronic currently has significant cash balances that should be sufficient to fund any conversion, helping to support a very solid liquidity position.

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