Bayer’s Outlook Lowered by Moody’s on ‘Credit Negative Events’

(Bloomberg) — Bayer AG had its outlook lowered to negative from stable by Moody’s Investors Service following a series of drug pipeline and legal setbacks that have sent its shares and bonds tumbling.

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The change of outlook on the pharma, agriculture and consumer health conglomerate’s Baa2 rating reflects the “potential credit impact of an accumulation of credit negative events” in the second half of 2023, according to a statement from the ratings agency on Friday.

Those include the recent awards of substantial punitive and compensatory damages in several trials related to Bayer’s Roundup herbicide and the recent stop of a blood-thinner drug trial. Moody’s is also concerned about the company’s free cash flow guidance which would impact its ability to cut its debt pile.

The increase in Bayer’s reported gross debt, from €41.5 billion ($45.3 billion) in December 2022 to €47.3 billion in September 2023, is in “stark contrast” to Moody’s previous expectation of a further debt reduction, the ratings agency said.

Bayer’s Chief Executive Officer Bill Anderson told investors on Tuesday that the recent setbacks have left the German company less room for maneuver as it considers a breakup.

“The impact of these recent events doesn’t change what our strategic options are,” he said. “It just may mean that some of those conditions are a little tighter than they otherwise would be.”

Read more: Bayer’s Drug and Legal Blows Leave CEO Less Room to Maneuver

Bayer is likely to be saddled with more debt and less revenue than it had expected going forward, Anderson said. That could affect the relative attractiveness of different restructuring approaches, as Bayer can’t overburden any new corporate entities with borrowings. The company’s shares plunged 18% on Monday, the most in its history.

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Separately, Bayer said it didn’t know the results of its blood-thinner drug trial before selling $5.75 billion of bonds…