Novartis loses AAA ratings on Alcon deal

By Maya Thatcher

LONDON (Reuters) - Credit rating agencies Standard & Poor's and Fitch Ratings stripped Novartis (NOVN.VX) of its triple-A ratings on Monday after the Swiss drugmaker announced it was buying a stake in U.S. company Alcon (ACL.N) from Nestle

(NESN.VX).

The downgrades can be seen as the end of an era: there are no European non-financial companies left with triple-A ratings from the two agencies.

The number of non-financial companies with top-notch triple-A ratings has dwindled in recent years as companies have become more confident about making use of debt to enhance shareholder returns.

S&P says it has just six such companies at the triple-A level globally; five in the United States and one in Asia.

S&P chopped Novartis's rating three notches to AA-, and said the outlook was now stable.

Fitch followed shortly after with a two-notch downgrade to AA, and placed the company's rating on stable outlook.

S&P said Novartis had shown a lack of commitment to its AAA rating in its plans to finance the acquisition of the 77 percent stake with debt, significantly increasing its leverage.

That news had little effect on the cost of insuring Novartis's debt against default. Five-year credit default swaps on Novartis were unchanged at 34 basis points, a trader said earlier. This means it costs 34,000 euros per year to insure 10 million euros of Novartis' debt against default for five years.

Fitch said in a statement that even though the acquisition would strengthen Novartis' healthcare portfolio: "The group's debt protection measures, however, are going to be significantly reduced by the transactions. Improvements in debt protection measures will take some time," Britta Holt, a director at the agency, said.

Fitch also added that it was unclear whether the purchase of minority shares would be financed through more debt issuance.

(Reporting by Richard Barley and Maya Thatcher, editing by Will Waterman/Andrew Hurst)