Healthcare companies are generally expected to maintain healthy credit profiles in 2008, mainly due to their well-diversified product portfolios, a low percentage of sales at risk through patent expiries and solid late-stage pipelines. Healthcare industry concerns include governmental cost containment efforts and a tough generics environment.
A key risk is that, despite the private equity risk abating, many companies across the consumer, retail and healthcare sectors will continue to pursue debt-financed share repurchases and special dividends, maintaining a trend toward more aggressive financial policies. Companies that have in 2007 undertaken share buybacks that have proved detrimental to their rating or outlook have been Nestle SA, AstraZeneca PLC, Diageo plc, GlaxoSmithKline PLC and British American Tobacco plc.
While leveraged buyout activity has slowed considerably, companies will continue in 2008 to pursue strategic acquisitions subject to their ability to obtain financing. It will be interesting to see, when the existing bank liquidity issue clears and assuming private equity remains passive enough to allow trade buyers to undertake M&A, which industries will forge ahead with on-going consolidation (beverages, tobacco, healthcare).
To a large degree, the concerns outlined above have been factored into Fitch's ratings, suggesting a relatively stable ratings picture in 2008. Supporting this stable outlook is the fact that ratings have already been downgraded in 2007 to reflect certain companies in more vulnerable sectors, such as DSG International plc (consumer electronics retailing) and Kingfisher Plc (DIY retailing), reflecting their own operational issues and in anticipation of the challenging environment ahead.
