TEXT-Fitch on Cardinal Health

Fri Mar 2, 2012 10:56am EST

March 2 - Cardinal Health, Inc.'s (Cardinal) ratings are not immediately affected by the suspension of Cardinal's license to distribute controlled substances out of one of its distribution centers, according to Fitch Ratings. However, future developments or the suspension of additional distribution centers' licenses, although not expected, could negatively affect the company's credit ratings over the next several months. A complete list of Cardinal's current ratings is provided at the end of this release. Fitch believes that the incremental costs associated with having to distribute controlled substances to its affected customers through its Jackson, Mississippi distribution center will be manageable for the firm. Using data from the company and from the Department of Justice, Fitch estimates that Cardinal's license suspension affects only approximately 2% of the company's total pharmaceutical distribution volume. Consequently, cash flows should be only very modestly affected. However, the potential for lost customers as a result of possible supply disruptions and a blemished reputation could pose a larger risk to Cardinal's credit profile. Controlled substances include commonly prescribed pain medications such as oxycodone, morphine, and codeine, as well as other popular drugs like alprazolam (Xanax, anxiety), methylphenidate (Ritalin, attention deficit hyperactivity disorder), and diazepam (Valium, anxiety/seizures). Fitch will continue to monitor the situation and assess its impact on Cardinal's ratings. A U.S. federal district court yesterday denied Cardinal's motion for a preliminary injunction against the Drug Enforcement Agency's (DEA) immediate suspension of the company's license to distribute controlled substances out of its Lakeland, Florida distribution facility. Cardinal, which had previously been awarded with a temporary restraining order following the DEA's suspension on Feb. 3, 2012, has appealed this decision. The suspension comes in response to high quantities of oxycodone sales to four of Cardinal's pharmacy customers in Florida. Cardinal serves approximately 2,500 pharmacies and providers out of its Lakeland distribution center. Fitch notes that the DEA suspended the licenses of four Cardinal distribution centers in late 2007. While these suspensions, which lasted for nearly a year, did result in additional incremental costs and some customer losses, the cash impact was not material to Cardinal's credit profile. Fitch currently rates Cardinal as follows: --Long-term Issuer Default Rating (IDR): 'BBB+'; --Short-term IDR: 'F2'; --Senior unsecured bank facility: 'BBB+' --Senior unsecured notes: 'BBB+'; --Commercial paper: 'F2'. The Rating Outlook is Positive. The ratings apply to approximately $2.55 billion of debt as of Dec. 31, 2011.

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