--IDR at 'BBB+';

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

--Senior unsecured debt at 'BBB+';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

The Rating Outlook is Stable.

The ratings are supported by low leverage (total debt/EBITDA) of 1.09 times (x), adequate liquidity and a business model that consistently generates positive free cash flow. The drug and medical-surgical distribution industries operate on low margins relative to other business sectors, which somewhat offsets the company's strong credit metrics.

MCK's drug and medical-surgical distribution segment benefits from relatively reliable demand growth. Although distribution margins are tight, they have incrementally trended upwards during the past four years. MCK's technology business has more volatile demand, but the increasing need for improved efficiency and safety in health care delivery bodes well for the segment's long-term growth. The technology business also offers significantly higher margins than distribution.

Margins in its drug distribution business continue to be supported by the increasing sales mix of higher-margin drugs such as generics and strong performance on fee-for-service contracts. However, the ongoing efforts by payers to rein in prescription drug costs could place pressure on prices and margins within the prescription drug channel.

Recent weakness hospital capital spending has dampened performance in MCK's Provider Technologies segment. Fitch expects it will stabilize and return to growth in 2010-2011, as the economy stabilizes, credit markets improve, and providers start investing in technologies that have been incentivized by the American Recovery and Reinvestment Act of 2009.

The ultimate outcome and impact of health care reform initiatives remain uncertain. However, recent proposals put forth by Congress would likely incrementally increase prescription volume and pressure reimbursement/pricing. McKesson and other distributors are not generally reimbursed by third-party payers. However, any margin pressure on manufacturers or pharmacy service providers could indirectly affect distributors' margins. As such, an important factor regarding reform is whether the incremental increase in volume would offset the incremental pressure on margins from customers and suppliers. At this point, Fitch views this issue as an event risk.

Fitch expects MCK will exercise discipline with acquisitions, share repurchases and dividends, resulting in leverage of 1.00x - 1.30x. MCK will likely focus on acquisition targets that offer improved products or opportunities to enhance operational efficiency. Share repurchases are expected to at least offset dilution from the options exercise and likely increase in the absence of acceptable acquisition targets. Dividends are expected to remain manageable for the firm.

MCK's strong operational cash flow, manageable capital expenditure requirements and a relatively small dividend provide for good free cash flow generation, which can fund targeted acquisitions and share repurchases. Fitch expects MCK will generate $500 million - $700 million in free cash flow (excluding payments for legal settlements) during fiscal year 2010 (ending March 31 2010).

At June 30, 2009, MCK had approximately $2.6 billion in cash and short-term investments, full availability under its $1.3 billion bank facility that matures in June 2012, and $1.1 billion receivables facility that matures in May 2010. Free cash flow (cash flow from operations minus capital expenditures minus dividends) for the latest 12 months (LTM) ended June 30, 2009 was $1.4 billion. MCK had approximately $2.5 billion in debt with $215 million maturing in 2010, $399 million in 2012, $499 million in 2013, $350 million in 2014 and $1,023 million thereafter. At June 30, 2009, LTM interest coverage (EBITDA/interest) was 14.49x and leverage (total debt/EBITDA) was 1.09x.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public 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.

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