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Rating Action:

Moody's assigns B3 to Bausch Health's unsecured notes

18 Nov 2020

New York, November 18, 2020 -- Moody's Investors Service ("Moody's") assigned a B3 rating to the new senior unsecured note offering of Bausch Health Companies Inc. ("Bausch Health"). There are no changes to Bausch Health's other ratings including the B2 Corporate Family Rating, the B2-PD Probability of Default Rating, the Ba2 senior secured rating, the B3 senior unsecured rating and the SGL-1 Speculative Grade Liquidity Rating. The outlook remains unchanged at stable.

Proceeds of the new senior unsecured notes are intended for the redemption of existing senior notes due in 2023 in a leverage neutral refinancing transaction. The refinancing is credit positive in that it will extend Bausch's debt maturity profile.

Rating assigned:

Issuer: Bausch Health Companies Inc.

Senior unsecured notes, Assigned B3 (LGD5)

RATINGS RATIONALE

Bausch Health's B2 Corporate Family Rating reflects its high financial leverage with gross debt/EBITDA above 7.0x. Factors inhibiting deleveraging include recent debt incurrence to fund a $1.2 billion legal settlement, and earnings pressure related to the ongoing coronavirus pandemic. However, demand for Bausch Health's products will substantially return once the pandemic ebbs, supported by good progress in an ongoing turnaround prior to the outbreak. In addition, deleveraging will resume consistent with a commitment to debt reduction. The credit profile is supported by good scale with over $8 billion of global revenue, solid product diversity and good free cash flow. The company is evaluating the potential spinoff of its global eyecare business. Such a transaction would increase business risks of the remaining company, including outstanding legal investigations and an unresolved patent challenge on Xifaxan -- the company's largest product. However, the spinoff would also likely result in significant deleveraging based on management's debt/EBITDA target of 5.5x for the remaining entity.

ESG considerations are material to the rating. Moody's regards the coronavirus pandemic as a social risk under Moody's ESG framework, given the substantial implications for public health and safety. Beyond the coronavirus outbreak, Bausch Health faces a variety of unresolved legal issues, and the potential for large cash outflows to resolve the matters cannot be ruled out. Other investigations into pharmaceutical companies' practices have taken several years to resolve, and have sometimes resulted in large payments to the US government. The matters that we believe create the most uncertainty relate to the company's former relationship with the specialty pharmaceutical distributor Philidor and those related to pharmaceutical pricing and the patient assistance programs. Other social risks include exposure to regulatory and legislative efforts aimed at reducing drug pricing. However, Bausch Health's product and geographic diversification help mitigate some of that exposure. Approximately 60% of Bausch Health's revenue is derived from medical devices, over-the-counter products, and branded generic products which haven't been a significant focus for pricing legislation. Bausch Health has also pledged to keep average annual price increases for their branded prescription products in the single digits.

Among governance considerations, management has had a consistent debt reduction philosophy ever since its troubles involving Philidor escalated. In addition, management has built a steady track record of generating positive organic growth.

The stable outlook reflects Moody's expectation that coronavirus-related earnings pressure will subside, resulting in debt/EBITDA declining below 7.5x in 2021. The stable outlook also reflects Moody's view that if the eyecare business is spun off, a weaker business profile will be mitigated by lower leverage.

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

Factors that could lead to an upgrade include improvement in earnings growth, successful commercial uptake of new products, and significant resolution of outstanding legal matters. Quantitatively, sustaining debt/EBITDA below 6.5 times with CFO/debt approaching 10% could support an upgrade, but a spinoff of the eyecare business would result in different thresholds due to reduced scale and diversity.

Factors that could lead to a downgrade include significant reductions in pricing or utilization trends of key products, large litigation-related cash outflows, an adverse outcome in the Xifaxan patent challenge, or debt/EBITDA sustained above 7.5 times.

Bausch Health Companies Inc. is a global company that develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter products. These are primarily in the therapeutic areas of eye health, gastroenterology and dermatology. Revenues for the 12 months ended September 30, 2020 totaled approximately $8 billion.

The principal methodology used in these ratings was Pharmaceutical Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062755. 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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

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.

Michael Levesque, CFA
Senior Vice President
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

Jessica Gladstone, CFA
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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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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 JPY125,000 to approximately JPY550,000,000.

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​
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