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Merck (MRK) received another negative vote from a credit-rating firm Thursday after Moody's Investors Service knocked down by one notch the company's senior unsecured notes.

Approximately $4.9 billion in debt will be affected by Moody's decision to cut the rating to Aa2 from Aa3. The rating outlook is negative.

In recent months, the three major credit-rating agencies -- Moody's, Standard & Poor's, and Fitch -- have cut Merck's ratings, which once were highest rated. In November, Moody's cut Merck's rating to Aa2 from the top-rated Aaa.

Moody's cut the rating Thursday because it believes Merck's free cash flow "will likely erode over the next several years at a time when the company faces uncertain but potentially very high legal exposures related to Vioxx." Merck withdrew the arthritis drug from the market on Sept. 30. The potential legal liability is a source of intense study and speculation among equity analysts and credit-rating firms.

Moody's said Thursday it doubts Merck's Vioxx-related costs will exceed $10 billion over the next three years. It noted that Merck's liquidity remains strong, with $14.2 billion of cash and fixed income investments as of Sept. 30 vs. $2.2 billion of short term debt.

Moody's said its view of Merck's credit health will depend heavily on the Vioxx litigation. "If adverse trial outcomes change the company's strategy with respect to settling cases, then higher cash outflows may ensue," the firm said. "The outcome of court cases over the next 12 to 18 months should provide much greater insight into these issues, particularly as we gain clarity on what type of evidence will be ... admissible in the courts."

The company's research pipeline and its management strategy following the planned early 2006 retirement of CEO Raymond V. Gilmartin also will have an impact on Moody's ratings. "As a result of these issues, Moody's believes that Merck's rating may face volatility over the next few years," the firm said.

For the rating outlook to stabilize, Moody's said it "would need to become more optimistic that the overall magnitude of Vioxx litigation costs will be modest, which may occur if very few lawsuits are filed against Merck over the next 12 to 18 months, or if there is a low success rate of cases actually going to trial."