Moody's cuts Boston Scientific, may lower Guidant

Moody's Investors Service said it lowered Boston Scientific Corp.'s senior note rating to Baa1 from A3, senior shelf to Baa1 from A3, subordinated shelf to Baa2 from Baa1 and preferred stock shelf to Baa3 from Baa2. All ratings, including the Prime-2 short-term rating, remain under review for further downgrade pending the completion of the acquisition of Guidant Corp. for about $27.5 billion.

At the same time, the agency put Guidant's Baa1 senior notes and P-2 short-term rating under review for possible downgrade.

The downgrade reflects Moody's belief that even if the transaction is not completed, the bid for Guidant signals management's willingness to leverage its balance sheet in a manner inconsistent with an A3 rating. Further, Moody's said it believes the corporate warning letter recently issued by the FDA provides greater uncertainty regarding future product approvals.

If the Guidant transaction is completed, Moody's said that despite the addition of diversity and growth prospects associated with Guidant's cardiac rhythm management business and the benefits derived from a second drug-eluting stent platform, Boston Scientific's long-term ratings would likely fall to Baa3.

The potential downgrade would be based on very high leverage and weaker cash flow and coverage metrics, potential constraints on deleveraging, possible product delays, the need to improve and sustain physician confidence affected by Guidant's recalls and concerns regarding management's ability to integrate a large acquisition in the midst of a more challenging regulatory and competitive environment, the agency said.

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