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Eli Lilly ratings placed on watch negative by S&P, affirmed by Moody's

S&P Global Ratings placed Eli Lilly and Co.'s ratings, including its AA- issuer credit rating, on CreditWatch with negative implications.

The placement follows the Indianapolis-based drugmaker's announcement that it will acquire cancer specialist Loxo Oncology Inc. for $235 per share, or about $8 billion.

The rating agency said the transaction is beneficial to Eli Lilly's position in the oncology market, but expects the company's adjusted net leverage to rise to roughly 1.9x for 2019, from roughly 1.0x as of the third quarter of 2018. S&P believes Eli Lilly can reduce its adjusted net leverage to below 1.5x within two years, given its track record of maintaining debt leverage below that level.

Upon consummation of the Loxo Oncology deal, S&P expects to resolve the CreditWatch placement and lower Eli Lilly's rating by one notch to A+.

Meanwhile, Moody's affirmed Eli Lilly's ratings, including its A2 senior unsecured rating, on the Loxo Oncology acquisition.

The outlook on the rating is stable.

Moody's said the transaction is credit negative since it increases Eli Lilly's financial leverage, will not become cash flow accretive for several years and is also subject to commercialization and pipeline execution risks.

However, Moody's expects Eli Lilly to use its strong free cash flow to reduce its debt/EBITDA to 3.0x by year-end 2019, from about 3.7x pro forma, and sustain it at that level.

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. 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.