S&P Global Ratings downgraded Cardinal Health Inc.'s ratings to BBB from BBB+ due to the risk stemming from the opioid-related litigation against the company.

Outlook on the ratings is stable.

Ratings believes the litigation could have a material impact on credit metrics and expects that possible settlements or judgments to resolve the opioid litigation will likely exceed the Dublin, Ohio-based healthcare services provider's $1.5 billion to $2 billion of debt capacity at the BBB+ rating.

Drug distributors Cardinal Health, McKesson Corp. and AmerisourceBergen Corp. recently proposed a settlement framework worth $18 billion paid over 18 years to several state attorneys general to resolve all lawsuits on the matter for all U.S. municipalities.

Cardinal's proportion of the cash settlement would be about $5.6 billion.

Since the settlement is still a proposal, Ratings did not incorporate an adjustment to debt, but if it gets approved, the rating agency will treat it as debt but on a discounted and tax-affected basis.

Although it will take some time before a global settlement is approved, Ratings expects the company's long-term leverage to average above 2.5x for a period of time given the scale of the potential liability. Leverage is a measure of debt a firm uses to finance its operations.

The rating agency's stable outlook reflects its expectation that the company's long-term leverage will be above 2.5x but also incorporates our expectation that the company would adjust its financial policy to maintain leverage below 3x if the size of a global settlement grows.

Ratings does not expect pressure from generic price deflation to materially worsen and does not expect EBITDA to decline by more than $200 million in 2019. If the current settlement framework is approved, Ratings expects an increase of about $3 billion in Cardinal's debt.