Rating Action:
Moody's assigns Ba3 to Valeant's new credit facilities; outlook stable
15 May 2018
New York, May 15, 2018 -- Moody's Investors Service ("Moody's") assigned Ba3 ratings to the new senior secured term loan and revolving credit agreement of co-borrowers Valeant Pharmaceuticals International, Inc. and Valeant Pharmaceuticals International (collectively "Valeant"). There are no changes to Valeant's other ratings including the B3 Corporate Family Rating, the B3-PD Probability of Default Rating, the Ba3 senior secured rating, Caa1 senior unsecured rating and SGL-2 Speculative Grade Liquidity Rating. The outlook remains stable.
Proceeds of the term loan are expected to be used to repay existing term loans and senior notes in a leverage-neutral refinancing. The transaction is credit positive because it will extend Valeant's debt maturities and modestly reduce total interest costs.
Ratings assigned:
Senior secured term loan due 2025, at Ba3 (LGD2)
Senior secured revolving credit facility expiring 2023, at Ba3 (LGD2)
RATINGS RATIONALE
Valeant's B3 Corporate Family Rating reflects its very high financial leverage with gross debt/EBITDA of about 7.5 times, and significant challenges in improving organic growth. Valeant also faces considerable uncertainty related to unresolved legal matters. Patent expirations over the next 12 to 18 months will erode earnings, causing debt/EBITDA to approach 8.0 times by late 2018. However, patent expirations will moderate in 2019, resulting in greater stability on an aggregate basis and a reduction in debt/EBITDA below 7.5 times.
The rating is supported by Valeant's good scale with over $8 billion of revenue, good product diversity and high margins. Valeant's liquidity is good, reflecting solid free cash flow and minimal short term borrowings.
The rating outlook is stable, reflecting Moody's expectation Valeant will use free cash flow to reduce debt, but that debt/EBITDA will remain above 7.0x.
Factors that could lead to an upgrade include good organic growth in Bausch + Lomb/International and Salix business lines, successful launches of new products, and progress at resolving legal proceedings. Specifically, sustaining debt/EBITDA below 7.0 times with CFO/debt approaching 10% could lead to upward rating pressure.
Factors that could lead to a downgrade include significant reductions in pricing or utilization trends, unfavorable developments in the Xifaxan patent challenge, or escalation of legal issues or large litigation-related cash outflows. Specifically, sustaining debt/EBITDA above 8.0 times could lead to downward rating pressure.
Headquartered in Laval, Quebec, Valeant Pharmaceuticals International, Inc. is a global company that develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter products, primarily in the therapeutic areas of eye health, gastroenterology and dermatology.
The principal methodology used in these ratings was Pharmaceutical Industry published in June 2017. Please see the Rating Methodologies page on
www.moodys.com for a copy of this methodology.