Moody's confirms Bayer debt, cuts Schering; outlook negative

Moody's Investors Services said it confirmed the A3 rating for the senior unsecured debt of Bayer AG and its guaranteed subsidiaries (Bayer Capital Corp. BV and Bayer Corp.) as well as the Baa2 rating assigned to the subordinated notes issued by Bayer AG and Bayer Capital.

The P-2 short-term issuer rating remains unchanged. The outlook for all ratings is negative.

Concurrently, Moody's said it lowered the long-term and short-term senior unsecured issuer ratings of Schering AG to A3/Prime-2 from A2/Prime-1, reflecting the expected integration of Schering's operations and financing into the Bayer group. The outlook for the ratings is also negative.

Moody's said that the confirmation of Bayer's ratings reflects a favorable assessment of the group's €16.9 billion acquisition of Schering from a business standpoint.

However, in lowering the outlook to negative, Moody's also said it recognizes that this sizeable acquisition will lead to some material deterioration in Bayer's credit metrics despite the €3.5 billion equity funding component recently raised through the issuance of mandatory convertible bonds and new shares and the material reduction in debt expected to be achieved by early 2007 through the divestment of various businesses projected to generate cash proceeds in excess of €5 billion.

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