Fitch Ratings raised its outlook on Watson Pharmaceuticals Inc. on Monday, saying the drugmaker has quickly paid down part of its debt after acquiring Arrow Group.
Fitch raised its rating by one notch to 'BBB' from 'BBB-.' Both ratings are investment grade, and Watson is now two notches above "junk status." Fitch noted that Watson has paid down $220 million in debt since its $1.75 billion purchase of Arrow closed in November 2009.
Fitch noted that Watson often starts paying down its debt quickly following an acquisition. The agency expects the company to continue to reduce debt for the rest of this year.
Fitch also said Watson's operations are solid, as its generic drug business has benefited from favorable U.S. pricing and limited competition to new key generic drugs. The agency also pointed to Watson's success at expanding its profit margins through cost cuts and offshoring manufacturing operations to lower cost locations such as India.
Fitch's ratings cover $1.24 billion in debt as of June 30.
Shares of Morristown, N.J.-based Watson rose 42 cents to $41.64 in afternoon trading.