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Rating Action:

MOODY'S ASSIGNS B1 TO ICN'S NEW SENIOR NOTES AND CONFIRMS THE B3 RATING ON THE CONVERTS - OUTLOOK IS POSITIVE

04 Aug 1997
MOODY'S ASSIGNS B1 TO ICN'S NEW SENIOR NOTES AND CONFIRMS THE B3 RATING ON THE CONVERTS - OUTLOOK IS POSITIVE New York, 08-04-97 -- Moody's Investors Service assigned a B1 rating to ICN Pharmaceuticals, Inc.'s ("ICN") $200 million Senior Note issue due 2005 and confirmed the B3 rating on the company's $115 million 8 1/2% convertible notes due 1999. The outlook for the company is positive. ICN is a multinational pharmaceutical company with a preponderance of its revenues and cash flows stemming from Eastern Europe.

Moody's rating reflects the fact that while on a consolidated basis, the company has attained a significant size, the majority of this growth has come from Eastern Europe. Additionally, Moody's has continued concerns regarding the company's ability to repatriate funds, particularly as roughly 60% of the company's proforma EBITDA stems from Eastern Europe. This concern is exacerbated by the continued buildup of receivables from Yugoslavia, as well as the government imposed cap on Yugoslavian purchases of healthcare products. Additionally, ICN's growth is focused on Eastern Europe and the successfulness of this strategy, particularly as it relates to the ability to repatriate funds, is largely unproven.

Moody's further notes that the company has suffered a setback in its growth in Western Europe and the United States with operating margins declining significantly over the past year. Additionally, while the company has acquired a line of products along with manufacturing plants from Roche, it has not demonstrated a robust same store growth rate and in general, the company continues to have a second-tier product line. Additionally, the note indenture explicitly permits the incurrence of $50 million of senior secured bank debt and the notes are not guaranteed by the subsidiaries of the company making the notes effectively subordinated to indebtedness incurred at the subsidiary level.

Positive factors included in the rating are the recent focus on increasing Western cash flows through the acquisition of Roche products, and the fact that ICN appears to be developing a platform for growth in Eastern Europe as it diversifies its operations away from Yugoslavia. ICN's goal is to be the distributor and local manufacturer of choice for all Eastern European governments, as well as for US and European pharmaceutical companies that do not want to invest in such a network in these politically sensitive countries. Moody's also notes the company's competitive advantages in this arena to help resolve the receivables issues in Yugoslavia, as well as to provide introductions throughout Eastern Europe. Additionally, the company now has a proven track record of working with the Eastern European governments to maintain jobs within the countries.

Moody's will view any significant growth in revenues and cash flow generation from countries with greater economic stability such as Poland, Hungary and Czechoslovakia positively and notes that the company continues to carry significant NOL's making the payment of taxes on funds it is able to repatriate less of a concern. Moody's will also take a favorable view of any success achieved by ICN with respect to its ability to up-tier its product line through new product acquisitions, as well as any successes achieved with its ribavarin product line, marketed under the Virazole trademark, in particular paying close attention to developments under the Schering-Plough agreement.

ICN Pharmaceuticals, Inc., headquartered in Costa Mesa, CA, is a multinational pharmaceutical company that develops manufactures, distributes and sells pharmaceutical, research and diagnostic products.


No Related Data.
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