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S&P revises drug distributors' outlook to negative on looming opioid settlements

S&P Global Ratings revised its outlook for drug distributors AmerisourceBergen Corp. and Cardinal Health Inc. to negative amid risks relating to the companies' potential opioid litigation settlements.

The possibility of a significant opioids settlement in the near term would have no credit impact on McKesson Corp., another drug distributor, Ratings said.

The drug distributors reportedly intend to pay $18 billion in cash over 18 years to settle charges alleging their role in helping fuel the U.S. opioid epidemic.

In the case of AmerisourceBergen, Ratings said the outlook revision reflects the heightened risk the drug distributor will reach a settlement that could exceed the $2 billion to $2.7 billion capacity the rating agency thinks the drug distributor could absorb and still maintain ratings. Similarly, Ratings said such a settlement could exceed the $1.5 billion to $2.2 billion the agency thinks Cardinal Health could absorb and still maintain ratings.

S&P Global Ratings affirmed AmerisourceBergen's A- issuer credit rating and the BBB+ issuer credit rating on Cardinal Health Inc.

In McKesson's case, Ratings said it believes the distributor has the capacity to absorb a sizable settlement amount at the current ratings level. The agency did not taking any rating action on the company.

The drug industry is facing about 2,600 lawsuits lodged by governments, hospitals and other institutions.

The proposed settlement comes ahead of a bellwether trial scheduled for Oct. 21 that will be presided by U.S. District Court Judge Dan Polster in Ohio.

Ratings added that the distributors are incentivized to reach a settlement before the conclusion of the trial by the end of 2019. A settlement would enable cash to be distributed to the plaintiffs as well as lower uncertainty for both AmerisourceBergen and Cardinal Health, Ratings said.

Meanwhile, drugmakers also offered billions in cash and medications and services to settle opioid charges. Johnson & Johnson is offering to pay $4 billion in cash to settle the lawsuits, while Teva Pharmaceutical Industries Ltd. reportedly proposed to distribute $15 billion in medicines and provide distribution services for over a decade.

J&J has already reached a $20.4 million settlement with two Ohio counties, allowing it to skip the Oct. 21 trial.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.