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Moody's downgrades Becton Dickinson to speculative grade

Moody's downgraded Becton Dickinson and Co. to speculative grade and assigned a Ba1 corporate family rating and a Ba1-PD probability of default rating.

In addition, the rating agency also downgraded the medical device maker's senior unsecured notes to Ba1 from Baa2 and its commercial paper rating to Not Prime from Prime-2.

Moody's also assigned a speculative grade liquidity rating of SGL-1.

The outlook on the rating is stable.

The downgrade comes as Becton Dickinson received China's conditional approval for its $24 billion acquisition of C. R. Bard Inc., taking the deal near completion.

The action concludes Moody's review of Becton Dickinson, started in April, under which it planned to lower the company's senior unsecured rating to Ba1 and short-term rating to Not Prime.

Moody's said Becton Dickinson's corporate family rating reflects its high financial leverage with debt/EBITDA near 5x at the closing of the Bard acquisition.

Becton Dickinson will have limited flexibility to deviate from its deleveraging plans and returning to investment-grade levels will take longer than what is acceptable for the previous rating, said Scott Tuhy, a senior vice president at Moody's.

The agency, however, said the combined firm is well diversified with market-leading positions across multiple product categories, and believes the company's cost-saving targets of $300 million by fiscal 2020 are achievable.

Moody's expects that Becton Dickinson will successfully integrate Bard and will substantially achieve cost synergy targets. It also expects the company to use free cash flow to reduce debt, as it progresses toward its leverage target of debt/EBITDA below 3x.