Fitch Downgrades Medco Health Solutions Inc.'s IDR & Sr. Unsec. to 'BBB'; Outlook Stable.

CHICAGO -- Fitch has downgraded the following ratings of Medco Health Solutions Inc. (NYSE:MHS):

--Issuer Default Rating (IDR) to 'BBB' from 'BBB+';

--Senior unsecured credit facility 'BBB' from 'BBB+';

--Senior unsecured debt 'BBB' from 'BBB+'.

This rating action impacts approximately $1.4 billion of debt. The Rating Outlook is Stable. The downgrades follow MHS's announcement that it will substantially increase its share repurchase program, leading to higher debt levels and a material increase in leverage.

MHS will increase its share repurchase program by $3 billion, resulting in a total authorization of $5.5 billion. Of the total authorization $3.9 billion have yet to be completed. MHS expects to repurchase the $3.9 billion during 2007-2008. Medco intends to finance the repurchase with cash flow and debt. Fitch believes that leverage could rise to 1.7 times (x) to 1.9x during 2007-2008.

While Fitch expects MHS's cash flow will remain strong, the anticipated increase in leverage limits the company's financial flexibility within the 'BBB' rating category. Fitch will look for continued strong operational performance and management's willingness to reduce leverage after the completion of the repurchase program.

Client retention, new client wins, specialty pharmacy and increased drug utilization should provide revenue growth in the intermediate term. A mix shift to specialty pharmacy and generic drugs are expected to sustain margins. Capital expenditure requirements are modest relative to MHS's cash flow generation.

Fitch believes one of the most significant issues facing the industry is transparency. MHS has made demonstrable progress in this area, regarding flexibility in rebate retention/pass-through. During the past few years, MHS has increased the amount and percentage of rebates passed through to clients, while experiencing some margin expansion. Nevertheless, Fitch expects that payers will continue to seek increased transparency and look for additional ways to control drug spending. As such, Fitch will monitor margins closely for MHS and the industry.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.