Fitch Ratings has assigned a 'BBB-' rating to new senior unsecured bonds
to be issued by an indirect subsidiary of Actavis plc (NYSE: ACT). Fitch
has also assigned a 'BBB-' Issuer Default Rating (IDR) to Actavis
Funding SCS, the issuer of the bonds, and Warner Chilcott Limited. ACT's
IDR is 'BBB-', with a Stable Outlook. A full list of ratings for ACT
follows at the end of this release.
The new unsecured notes will be issued by Actavis Funding SCS and are
expected to benefit from substantially similar upstream and downstream
guarantees as the already-existing credit facilities borrowed by Actavis
Capital S.a r.l., as well as a guarantee from Actavis Capital S.a r.l
itself. As a result, Fitch believes the new notes will be pari passu
with the rest of the unsecured debt in the capital structure.
Proceeds from the issuance are expected to be used to finance a portion
of the acquisition of Forest Laboratories, Inc. (Forest) and to
repurchase the $1.25 billion of senior unsecured notes issued by a
subsidiary of legacy Warner Chilcott plc.
KEY RATING DRIVERS
-- The combination of ACT and Forest is strategically compelling. The
deal will result in a specialty business that is stronger competitively,
particularly in the U.S., and that is expected to produce significant
sales and cost synergies over the medium term.
-- Recent investments in the specialty pharmaceuticals segment,
including the Forest acquisition, should result in higher revenue growth
and profitability for ACT versus the legacy generic pharmaceuticals
business. However, the short timeframe between recent acquisitions makes
it difficult to estimate the company's run-rate EBITDA and cash flow.
-- Actavis has a history of successful business integration accompanied
by debt paydown. However, Fitch is concerned that integration challenges
could result from proximity of the Forest deal to ACT's purchase of
Warner Chilcott plc in 2013, and further complicated by the purchases by
Forest of Aptalis Holdings, Inc. and Furiex Pharmaceuticals in 2014.
-- Actavis also has a history of directing cash flows toward debt
repayment following large debt-funded acquisitions. Fitch expects gross
debt leverage of 3x by year-end 2015 and believes this target is
achievable primarily on the basis of EBITDA growth. The firm's strong
cash generating ability will enable further debt repayment in the event
of less-than-expected EBITDA growth.
-- Fitch sees ACT's base generics pharmaceutical business benefiting
from a moderately favorable operating environment for the global generic
drug industry over the next several years. Gradually improving generic
penetration rates in many developed European countries, the opportunity
for continued expansion into developing markets, and the prospects of a
burgeoning biosimilars market in the 2016 timeframe and beyond drive
-- The slowing pace of branded-to-generic conversions post-2014/2015,
likely cost pressures from growing drug purchasers, and generally
constrained healthcare reimbursement globally are the most notable
Maintenance of 'BBB-' ratings will generally require ACT to operate with
gross unadjusted debt leverage of around 3x or below, accompanied by
consistent base business growth and meaningfully positive free cash flow
(FCF). Successful integration of both Warner Chilcott and Forest will
also support the current 'BBB-' ratings.
Ratings flexibility will be limited in the near term. Maintenance of the
'BBB-' rating is based on Fitch's expectation that cash flows will be
directed toward debt repayment as necessary to meet the 3x leverage
target by the end of 2015. Setbacks in the integration of Forest and its
own recently acquired businesses, or other cash payouts (i.e.
litigation- or regulation-related) that hinder ACT's ability to meet the
leverage target, could pressur the 'BBB-' ratings.
A negative rating action could result from a further leveraging
transaction during the de-leveraging and integration timeframe set
above. Deteriorating operations or severely negative pricing trends
leading to gross debt leverage that is expected to be sustained above 3x
and/or FCF that is significantly reduced from current levels could drive
a downgrade to 'BB+'.
A positive rating action is not expected in the near term, but could be
precipitated by Fitch's expectation for gross debt leverage to be
sustained below 2.5x, accompanied by consistent FCF margin of at least
6%. Additional de-leveraging and improved cash flows in the near- to
intermediate-term could result from better-than-expected synergies
and/or new product launches.
Fitch has assigned the following new ratings:
Warner Chilcott Limited
-- IDR 'BBB-'.
Actavis Funding SCS
-- IDR 'BBB-';
-- Senior unsecured notes 'BBB-'.
The Rating Outlook is Stable.
Fitch currently rates ACT as follows:
Actavis Capital S.a r.l.
--Unsecured bank facility 'BBB-'.
--Unsecured notes 'BBB-'.
WC LuxCo S.a r.l.
Warner Chilcott Corporation
WC Company LLC
--Unsecured bonds 'BBB-'.
Warner Chilcott Finance LLC
The Rating Outlook for each IDR is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage' (May 28, 2014);
--'Fitch Affirms Actavis at 'BBB-' on Forest Labs Acquisition; Outlook
Stable' (Feb. 18, 2014);
--'Fitch Assigns Initial 'BBB-' Ratings to Actavis plc & Subsidiaries;
Outlook Stable' (Oct. 1, 2013);
--'Fitch Affirms Actavis' at 'BBB-'; Outlook Stable (Sept. 25, 2013);
--'Fitch: Warner Chilcott Deal In Line with Actavis' 'BBB-' Ratings'
(May 20, 2013);
--'Global Pharmaceutical R&D Pipeline - Evolving Trends in Diabetes and
Cancer Treatments' (May 13, 2014);
--'U.S. Healthcare Stats Quarterly: Fourth-Quarter 2013' (April 25,
--'Trekking the Path to Biosimilars - Forging Ahead' (Aug. 5, 2013).
U.S. Healthcare Stats Quarterly - Fourth-Quarter 2013
Trekking the Path to Biosimilars -- Forging Ahead
Global Pharmaceutical R&D Pipeline
Global Pharmaceutical R&D Pipeline - Evolving Trends in Diabetes and
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage
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