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Global Credit Research - 16 Mar 2011
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.
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
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
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
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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's lowers Lantheus's CFR to B3 from B2 in conjunction with dividend
250 Greenwich Street
New York, NY 10007
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