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Rating Action:

Moody's assigns B1 rating to Catalent's notes offering

23 Sep 2021

New York, September 23, 2021 -- Moody's Investors Service ("Moody's") assigned a B1 rating to Catalent Pharma Solutions, Inc. ("Catalent") proposed $450 million senior unsecured notes due 2030. There are no changes to Catalent's existing ratings including the Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating, Ba1 senior secured bank credit facility and SGL-1 Speculative Grade Liquidity rating. The outlook remains stable.

Proceeds of the offering together with the recent $450 million term loan will be primarily used to finance the $1 billion acquisition of Bettera Holdings, LLC (announced on August 30, 2021) and pay fees and expenses. While the acquisition will increase Catalent's financial leverage -- a credit negative -- the addition of Bettera will raise the growth and margin profile of Catalent's Softgel and Oral Technologies ("SOT") business, which has faced headwinds since 2020. Further, we expect Catalent's financial leverage to improve from around 4.5x (pro forma for Bettera) to below 4x within 12-18 months based on earnings growth and debt repayment. This incorporates earnings contribution from Bettera.

Assignments:

..Issuer: Catalent Pharma Solutions, Inc.

....Gtd Senior Unsecured Global Notes, Assigned B1 (LGD5)

RATINGS RATIONALE

Catalent's Ba3 Corporate Family Rating is supported by its track record of delivering strong revenue and earnings growth. It also reflects its good size and scale, breadth of service offerings and position as one of the largest contract development and manufacturing organizations (CDMOs) globally. The company also maintains a diversified customer base and commands a large library of patents, know-how, and other intellectual property that raise barriers to entry and enhance margins. Increased outsourcing among its pharma clients and rapid growth in biologics support Moody's expectation for at least high-single digit earnings growth over the next several years. Near term, the COVID-19 pandemic has presented opportunities to Catalent; the company is involved in over 50 programs to develop treatments and vaccines, including with AstraZeneca and Moderna. Catalent is meeting growing demand for its services by expanding capacity. This is supported by a significant increase in capex and an active M&A policy geared towards building positions in the nascent cell and gene therapy industry. However, this strategy will weigh on free cash flow. Further, Moody's expects Catalent to remain acquisitive which could lead to a temporary increase in leverage. The rating also reflects the risks inherent in the contract manufacturing industry, which is highly competitive, and has high reliance on the pharmaceutical industry.

The stable outlook reflects Moody's expectation that leverage will improve over the next 12 to 18 months, and that adjusted debt/EBITDA will generally be maintained in the 3.5x to 4.0x range.

The Speculative Grade Liquidity Rating of SGL-1 reflects Moody's expectation that Catalent's liquidity will remain very good over the next 12 to 18 months. Catalent's liquidity will be supported by a strong cash balance ($953 million as of June 30, 2021) and access to a substantially undrawn $725 million revolving credit facility that expires in May 2024.

Social and governance considerations are material to Catalent's credit profile. Like other providers of services for the pharmaceutical industry, Catalent faces - albeit indirectly - rising exposure to regulatory and legislative efforts aimed at reducing healthcare costs and in particular drug prices and reimbursement rates. These are fueled in part by demographic and societal trends that are pressuring government budgets because of rising healthcare spending. Turning to governance, Catalent has pursued a financial policy and capital allocation policies that balance both creditor and shareholder interests since its IPO in 2014. While it has increased debt to fund acquisitions, it has also issued equity to repay debt, which is credit positive. For example, Catalent issued equity to repay debt in 2018 several months after the Cook acquisition, and more recently funded the acquisition of MaSTherCell through equity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Catalent reduces financial leverage such that its debt to EBITDA is sustained below 3.5 times. Successful integration of acquisitions and organic growth that results in increased scale and improved business line diversity, would also support an upgrade. Improved free cash flow would also support a higher rating.

The ratings could be downgraded if Moody's expects Catalent's financial leverage to be sustained above 4.5 times. The ratings could also be downgraded if Catalent's earnings deteriorate, or if the current elevated capex strategy fails to generate very strong organic revenue growth. The ratings could be downgraded if the company adopts a more aggressive acquisition or shareholder strategy.

Catalent Pharma Solutions, Inc. is a leading contract development and manufacturing organization (CDMO) company and a global provider of advanced delivery technologies and development and manufacturing solutions for drugs; protein, cell, and gene therapy biologics; and consumer health products. These include the company's formulation, development and manufacturing of softgels and other products for the prescription drug and consumer health industries. The company reported revenue of approximately $4.0 billion in its fiscal year ended June 30, 2021.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jean-Yves Coupin
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ola Hannoun-Costa
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

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