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(Bloomberg) -- Johnson & Johnson, one of the last US companies with top credit ratings, is at risk of losing its AAA grade from S&P Global Ratings after the maker of drugs and medical devices said it was acquiring Intra-Cellular Therapies Inc.
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S&P said on Tuesday that it’s reviewing whether it should cut the company’s credit ratings, in part because the $14.6 billion acquisition would boost J&J’s indebtedness. J&J will probably make more debt-funded acquisitions in the future, according to S&P.
J&J is one of the last remaining companies rated AAA, along with Microsoft Corp. Ratings drops can boost a company’s borrowing costs, although in the case of companies in the highest ratings tiers, any difference may be minimal.
On Monday, J&J said that it’s funding the Intra-Cellular Therapies purchase with cash and debt. It expects to close on the deal this year.
Separately, Moody’s Ratings on Tuesday affirmed J&J’s current AAA rating. Johnson & Johnson has “cash-on-hand of over $20 billion as well as very strong annual free cash-flow generation,” according to the bond-grading firm.
--With assistance from Ethan M Steinberg.
(Updates throughout and adds detail from S&P statement.)
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