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Moody’s applies Baa1 to CVS notes
Moody's Investors Service said it assigned a Baa1 rating to CVS Health Corp.'s new proposed $40 billion senior unsecured notes offering.
The rating remains on review for downgrade.
Net proceeds, along with funds raised from the issuance of new term loan facilities, will be used to fund a portion of the cash consideration to acquire Aetna, Inc. The transaction is expected to close in the second half of 2018. The majority of the proposed new notes will be subject to a mandatory redemption in the event that the proposed acquisition of Aetna is not completed by June 3, 2019 unless extended.
Moody's said it anticipates that should the transaction receive regulatory clearance and close without any major changes to the transaction terms outlined by the company including CVS' commitment to maintain a strong investment grade capital structure and shut off all share repurchases while using all free cash flow after dividends to repay debt and keep dividends per share at current levels, CVS' senior unsecured rating will be downgraded one notch to Baa2 with a negative outlook.
"The combination of CVS and Aetna will create a one of a kind vertically integrated healthcare company with huge scale and mark an industry shift towards a more seamless approach to managing healthcare costs as it brings together the overall management of a patient's medical bills and prescription drugs under one umbrella,” Moody's vice president Mickey Chadha said in a news release.
"However, the transaction will result in significant weakening of CVS' credit metrics as it will be financed with a large amount of debt and will come with high execution and integration risks."
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