S&P Global Ratings lowered Bayer AG's long-term issuer credit ratings by two notches to BBB to account for the German drug and chemicals maker's $62.5 billion acquisition of Monsanto Co., the world's top seed supplier.
Bayer will issue nearly 75 million new shares to existing investors at €81 each to raise €6 billion which will be used to help fund the acquisition, expected to close June 7. The German agrochemical giant also intends to issue senior bonds in U.S. dollars and euros, with an expected total volume of up to €20 billion.
The downgrade reflects the rating agency's view that Bayer's credit metrics will be weaker over the next two years due to a large increase in debt levels, anticipated to reach over $30 billion.
S&P said the acquisition would increase Bayer's adjusted debt-to-EBITDA ratio to a multiple of 3.5 two years after closing but solid free cash flow generation of between €3.0 billion and €3.5 billion should enable the company to gradually deleverage.
The ratings agency removed Bayer from CreditWatch and does not expect to take further action at the time.
The stable outlook on the company's rating reflects S&P's view that Bayer's operating performance would be supported by the positive growth prospects of the profitable pharmaceutical segment and gradual improvement in earnings from agriculture products driven mostly by growth in the high-margin seeds segment.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global Inc. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
