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Rating Action:

Moody's lowers Lantheus's CFR to B3 from B2 in conjunction with dividend

16 Mar 2011

Outlook stable

New York, March 16, 2011 -- Moody's Investors Service lowered the ratings of Lantheus Medical Imaging, Inc. (Corporate Family Rating and senior unsecured notes to B3 from B2) in conjunction with the company's decision to tack-on $150 million in notes to its May 2010 bond offering. At the same time, the company's speculative grade liquidity rating was changed to SGL-3 from SGL-2. The rating outlook is stable. Proceeds will be used to finance a dividend to the private equity sponsor and refinance preferred stock at holdco.

Ratings downgraded:

Lantheus Medical Imaging, Inc.

Corporate Family Rating to B3 from B2

PDR to B3 from B2

$400 million senior unsecured notes to B3, LGD4, 55% from B2, LGD4, 57%

Speculative grade liquidity rating to SGL-3 from SGL-2

RATINGS RATIONALE

Following this transaction, pro-forma leverage based on 2010 financials is relatively high, with debt/EBITDA estimated to be about 5.0 times. The downgrade also reflects weaker than expected sales trends and the likelihood that free cash flow generation will be negative during 2011. Sales of Cardiolite contrast agent (used in nuclear stress tests) and Technelite generators (used to radiolabel Cardiolite and other Technetium-based radiopharmaceuticals) have not fully recovered to expected levels following the re-opening of the NRU nuclear reactor, which produces Molybdenum-99 (Moly-99), a radioactive isotope that is critical to these two products. Although Definity (a contrast agent used for echocardiograms) saw 40% year over year growth, it performed below the company's previous expectations. In addition, Ablavar (used to measure blood flow for patients with peripheral vascular disease), has seen significantly slower than anticipated adoption by physicians. The presence of a committed manufacturing contract for Ablavar will will result in high inventory levels that will constrain operating cash flow in 2011.

"The combination of incremental debt associated with a dividend payment and weaker than expected performance contribute to the rating downgrade for Lantheus," said Diana Lee, a senior credit officer at Moody's.

The B3 CFR also reflects Lantheus's heavy reliance on a somewhat volatile supply source, relatively small size with declining revenues due to generic competition for Cardiolite, and high product concentration risk. Lantheus's primary source for Moly-99, the NRU nuclear reactor in Canada, did come back on line during August of 2010, and the company continues to take steps to reduce reliance on the NRU. The global supply source, however, will continue to be vulnerable due to an aging infrastructure, complex repair needs and a high degree of government regulation. Further, weaker sales and higher interest expense associated with incremental debt will hamper the company's ability to invest in R&D to support new product development, which is critical to its growth. These weaknesses are somewhat offset by the company's solid market position in the medical diagnostic imaging segment, and contracts with key radiopharmacies, including one recently renewed with UPPI, that provide some top-line stability over the intermediate term.

The stable outlook reflects our view that sales and cash flow generation will be sufficient to provide close to breakeven operating cash flow during 2011 despite a scheduled maintenance shut-down of the NRU nuclear reactor for four weeks in May. If there is a disruption to the Moly supply source, sales do not improve as expected, or working capital needs are higher than anticipated, such that free cash flow continues to be negative over a protracted period of time, the ratings could be further downgraded. We believe that liquidity would further weaken under these scenarios. If, however, sales trends improve, and metrics are likely to be sustained in the "Ba" range, with debt/EBITDA in the 2.5-3.75 times range and FCF/debt in the 7.5%-15% range, the ratings could be upgraded.

The SGL-3 rating incorporates our expectation that despite weaker operating cash flow, Lantheus will be able to maintain adequate liquidity over the next twelve months, supported by internal sources of cash and a currently untapped revolver that can fund operating and capital spending needs. Bank covenant cushions are expected to be sufficient following amendments required in conjunction with these new borrowings; however, covenants could become tighter due to quarterly step downs.

For additional information, please see Moody's credit opinion on Lantheus on www.moodys.com.

The principal methodologies used in this rating were Global Pharmaceutical, 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.

Lantheus Medical Imaging Inc. ("Lantheus") is a leading global manufacturer of medical imaging products and a wholly-owned subsidiary of Lantheus MI Intermediate, Inc., which, in turn, is a wholly-owned subsidiary of Lantheus MI Holdings, Inc. The company primarily manufactures products for cardiovascular diagnostic imaging.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining 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 for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Diana Lee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Christina Padgett
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's lowers Lantheus's CFR to B3 from B2 in conjunction with dividend
No Related Data.
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