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14 Nov 2019
New York, November 14, 2019 -- Moody's Investors Service ("Moody's") assigned
Ba2 ratings to the proposed $1.5 billion of Euro-denominated
and US dollar-denominated unsecured notes offering by Teva Pharmaceutical
Finance Netherlands II B.V. and Teva Pharmaceutical Finance
Netherlands III BV, respectively. Both entities are subsidiaries
of the parent company, Teva Pharmaceutical Industries Ltd,
collectively "Teva." The proposed notes will have downstream guarantees
from the parent. Moody's anticipates the proposed notes will
be pari passu with all other existing senior unsecured debt. There
are no changes to Teva's existing ratings, including the Ba2 Corporate
Family Rating. Teva will use the net proceeds from the offerings,
together with cash, to repay up to $1.5 billion in
aggregate of unsecured notes due in 2021 (including the 2.200%,
3.650% tranches). Proceeds will also be used to fund
transaction fees and expenses and/or for general corporate purposes.
The outlook remains negative.
"Successful execution of the announced bond offering and tender offer
for debt maturing in 2021 will be credit positive for Teva, substantially
reducing near-term refinancing risk," said Moody's Vice President,
Morris Borenstein. Teva has sizeable debt maturities over the next
few years, including more than $2 billion that matures by
the end of 2020. Based on Moody's projections for free cash flow
of roughly $2 billion per year, the rating agency believes
that Teva will have sufficient internal liquidity to repay 2020 maturities.
Teva has approximately $4.2 billion of debt that matures
in 2021, which, following the completion of the proposed $1.5
billion refinancing, can be largely repaid with free cash flow.
That said, interest rates on the new debt will likely be substantially
higher than maturing debt, raising the company's overall cash
interest expense. Moody's believes that continued debt repayment
will mitigate the growth of interest expense over time.
Still, litigation payments and/or higher production costs associated
with potential future opioid-related settlements, could delay
the company's ability to deleverage by consuming cash that would otherwise
be used for debt repayment. In October 2019, Teva announced
a proposed framework to resolve outstanding opioid litigation, that
would include a relatively modest cash payment and a requirement to supply
buprenorphine naloxone tablets, a treatment for opioid dependence,
for a period of 10 years. In the third quarter of 2019, Teva
increased its accrual expense to $1 billion, up from $646
million a quarter ago. This represents mainly the current provision
for the minimum potential for future liabilities for opioid-related
cases. This amount will likely grow over time as more information
becomes available, including the potential finalization of its proposed
settlement framework.
The negative outlook continues to reflect Teva's persistently high leverage
and exposure to opioid-related litigation. It also reflects
the minimal cushion in the rating for any negative developments in operating
performance that will further delay deleveraging. These include:
weak uptake of Teva's new branded drugs; acceleration of erosion
of Copaxone; inability to stabilize profitability in the US generics
business; or large cash outlays related to litigation.
Ratings assigned:
Teva Pharmaceutical Finance Netherlands II BV (EUR):
Senior unsecured notes at Ba2 (LGD4)
Teva Pharmaceutical Finance Netherlands III BV (USD):
Senior unsecured notes at Ba2 (LGD4)
RATINGS RATIONALE
Teva's Ba2 Corporate Family Rating reflects its significant scale in both
generic and branded drugs, its global diversity, and its position
as the world's largest generic drug company. While earnings declines
are moderating, Teva's future earnings growth depends on the relative
stability of its global generics business, coupled with the ramp
up of newer branded drugs, such as AJOVY and Austedo. Payor
dynamics are still evolving and a new auto-injector has the potential
to accelerate AJOVY revenue growth, but the launch success has been
modest since its approval in September 2018.
Teva's ratings are constrained by high financial leverage. Moody's
believes that adjusted debt/EBITDA will remain above 5 times in 2020,
then decline below 5 times in 2021. Adjusted debt/EBITDA peaked
at around 6.5x in mid-2019. Subsequently, Moody's
believes that leverage will steadily decline, driven by debt repayment
and Moody's expectation for a return to modest earnings growth in 2020.
Moody's believes that Teva will use a majority of its cash flow to pay
down debt. Key risk factors include rising exposure to opioid and
other litigation, including alleged generic drug price fixing.
Moody's rates all of Teva's debt Ba2, the same as its Ba2 Corporate
Family Rating. All of Teva's debt is unsecured and unconditionally
guaranteed by Teva Pharmaceutical Industries Limited, the parent
company.
Teva's ratings could be upgraded if the company materially improves its
operating performance and liquidity, and is able to more than offset
generic price erosion with new product launches. Additionally,
Teva would need to sustain debt/EBITDA below 4.5 times before Moody's
would consider an upgrade. Resolution/greater certainty with respect
to Teva's opioid and other litigation exposures would also be needed.
The ratings could be downgraded if Teva's free cash flow remains weak
for an extended period of time, or if Moody's expects debt/EBITDA
to remain above 5.0 times. Failure to refinance large debt
maturities well in advance could also lead to a downgrade. Negative
litigation developments, which Moody's believes will materially
reduce the company's ability to deleverage, could also result in
a downgrade.
Headquartered in Petah Tikvah, Israel, Teva Pharmaceutical
Industries Ltd. is a global pharmaceutical company offering a mix
of generic and branded products. Reported revenue for the twelve
months ended September 30, 2019 was approximately $17.5
billion.
The principal methodology used in these ratings was Pharmaceutical Industry
published in June 2017. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Morris Borenstein
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
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.
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