Moody’s Downgrades Bergen Debt Issues

A leading credit rating agency again downgraded debts already considered junk bonds owed by Bergen Brunswig Corp., citing the company’s need to find working capital and improve cash flow.

Moody’s Investors Service Inc., which lowered its ratings on certain Bergen debts two months ago, reduced its ratings on four issues of debt securities. All were rated as high-risk corporate debt previously and were lowered slightly again.

Tuesday’s action by Moody’s follows similar action by competitor Standard & Poor’s, which also twice in the last two months downgraded debts of the Orange-based company.

S&P; said last week that its downgrades on eight debt issues reflected “deteriorating conditions in the company’s core drug distribution business as well as continued losses” at a specialty drug distributor acquired last year.

Bergen, the nation’s third-largest drug wholesaler, has more than $1 billion in long-term obligations.

Moody’s was concerned about the company’s cash position.

“The company’s decision to take greater advantage of buying opportunities will now result in a period of cash outflows,” Moody’s said in a press release.

“While this would typically be a part of the company’s working capital cycle, this is occurring at a time when the company has not yet completed the necessary steps to establish sustainable liquidity funding,” the agency said.

As Bergen continues to expand its distribution business, Moody’s said inventory buys could “create some uncertainty in the timing of working capital needs,” thus requiring better funding.

Moody’s said it will continue to review Bergen’s debt issues with a focus on the ability of executives to manage cash in-flows and outflows. Moody’s said it also will examine Bergen’s financing arrangements, including a final bank agreement.