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Global Credit Research - 15 Nov 2010
New sr. unsecured notes assigned Ba2; first-time ratings
New York, November 15, 2010 -- Moody's Investors Service assigned a Corporate Family Rating of
Ba2 to Endo Pharmaceuticals Holdings Inc. ("Endo").
Moody's also assigned a Ba2 rating to Endo's new senior unsecured
note offering, and a SGL-1 Speculative Grade Liquidity Rating.
This is the first time Moody's has assigned ratings to Endo.
The rating outlook is stable.
Proceeds of the note offering are expected to be used to partially fund
the pending acquisition of Qualitest Pharmaceuticals, announced
on September 28, 2010. The acquisition is expected to close
during the fourth quarter of 2010 or first quarter of 2011.
Ratings assigned to Endo Pharmaceuticals Holdings Inc.:
Ba2 Corporate Family Rating
Ba2 Probability of Default Rating
Ba2 (LGD4, 58%) senior unsecured notes of $400 million
SGL-1 Speculative-Grade Liquidity Rating
Moody's does not rate Endo's amended $500 million senior secured
revolving credit facility due 2015, $400 million senior secured
Term Loan A due 2015, or $379.5 million 1.75%
senior subordinated convertible notes due 2015.
The Ba2 Corporate Family Rating reflects Endo's modest size and
scale relative to larger pharmaceutical peers, partially offset
by the company's solid market positioning as a niche player in the
pain market and its conservative financial profile. The ratings
also reflect Endo's solid cash flow generation, very good
liquidity, and potential near-term pipeline opportunities.
The ratings are constrained by very high product concentration in Lidoderm,
which now faces a patent challenge, its lack of geographic diversity,
its aggressive business development philosophy, and an unresolved
DOJ investigation into promotional practices for Lidoderm. On a
pro forma basis for the proposed acquisition of Qualitest, Endo's
credit metrics are expected to remain strong for the rating category,
with adjusted Debt/EBITDA of approximately 1.9 times, adjusted
CFO/Debt of approximately 32% and adjusted FCF/Debt of approximately
25%. Although Endo's ongoing business development
plans may involve debt-financed acquisitions, Moody's
currently assumes that Endo's Debt/EBITDA will not materially exceed
The rating outlook is stable. Endo's above-average
credit metrics help offset concerns about product concentration,
upcoming generic threats, and the unresolved marketing investigation.
Although not anticipated over the near-term, upward pressure
on the ratings could develop if Endo substantially increases its size,
scale and diversification while sustaining conservative credit metrics,
e.g. solidly within Moody's "Baa" ranges.
Conversely, Endo's ratings could face negative pressure if
Moody's assumptions about a conservative financial profile do not
materialize. For instance, cash flow to debt ratios below
Moody's "Baa" ranges or Debt to EBITDA above 2.5
times could result in a rating downgrade.
The Ba2 rating on the senior unsecured notes reflects subordination relative
to the secured credit facility and term loan, but also reflects
loss absorption provided by convertible subordinated notes. Future
changes in Endo's capital structure mix—such as additional
secured debt allowable under the bond indenture or a reduction in subordinated
debt—could result in a downgrade of the Ba2 rating on the senior
unsecured notes even if the Corporate Family Rating remains unchanged.
For additional information please refer to Moody's Credit Opinion
on Endo Pharmaceuticals Holdings Inc. and Covenant Quality Pre-Sale
Snapshot on the new senior unsecured notes available on www.moodys.com.
The principal methodologies used in this rating were Global Pharmaceutical
Industry published in October 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in Chadds Ford, Pennsylvania, Endo Pharmaceuticals
Holdings Inc. is a U.S.-focused specialty
pharmaceutical company that develops, manufactures and markets branded
and generic prescription pharmaceutical products primarily in the areas
of pain management and urology, as well as medical devices and services
solutions focused primarily in urology. For the twelve months ended
September 30, 2010 Endo generated total revenues of approximately
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba2 CFR to Endo Pharmaceuticals; stable outlook
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New York, NY 10007
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