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Investing.com -- S&P Global Ratings has assigned an ’AAA’ issue-level rating to Johnson & Johnson (NYSE:JNJ)’s newly offered senior unsecured notes, which are to be issued in multiple tranches. The rating agency has placed the notes on CreditWatch with negative implications.
The proceeds from the note offering will be used by Johnson & Johnson to partially fund the acquisition of Bedminster, New Jersey-based pharmaceutical company, Intra-Cellular Therapies (NASDAQ:ITCI) Inc. The acquisition, which was announced on January 14, 2025, is valued at approximately $14.6 billion.
Following the announcement of the acquisition, S&P Global Ratings placed Johnson & Johnson’s ratings on CreditWatch with negative implications. The ratings agency estimates that this transaction will increase Johnson & Johnson’s adjusted leverage to about 1.4 times, which is significantly above their 1.0 times downside trigger. The leverage is expected to decline to 1.1 times by the end of 2025 and fall below 1.0 times by the end of 2026.
In recent years, Johnson & Johnson’s adjusted leverage has been relatively high due to significant acquisition activity and ongoing talc litigation. The company’s acquisition of medical device maker Shockwave Medical (NASDAQ:SWAV) Inc. for $13.1 billion in the first half of 2024 and roughly $10 billion in litigation settlements, after adjusting for the tax benefit, have contributed to the high leverage.
Despite the high leverage, Johnson & Johnson’s management has consistently prioritized conservative financial policies and has successfully integrated and de-levered after large acquisitions. The company maintains a diverse healthcare portfolio with strong franchises in both pharmaceuticals and medical devices.
The company’s long-running talc litigation may be nearing a resolution with a hearing set to begin on February 18, 2025, to determine the finalization of the multibillion-dollar settlement for talc-related ovarian cancer claims. The resolution of the talc litigation and increased visibility into the company’s financial policy regarding additional mergers and acquisitions and leverage tolerances are expected to aid in the resolution of the CreditWatch listing in the coming weeks or months.
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