Hostile takeover bid for $5.7 billion
New York, March 30, 2011 -- Moody's Investors Service placed the ratings of Valeant Pharmaceuticals
International, a subsidiary of Valeant Pharmaceuticals International,
Inc. (collectively referred to as "Valeant") under review for possible
downgrade. Ratings placed under review include Valeant's Ba3 Corporate
Family Rating, Ba3 Probability of Default Rating and Ba3 senior
unsecured rating.
This rating action follows the announcement by Valeant that it has proposed
acquiring Cephalon, Inc. ("Cephalon") for $73.00
per share in cash, or approximately $5.7 billion,
to be entirely debt financed.
Ratings placed under review for possible downgrade:
Ba3 Corporate Family Rating
Ba3 Probability of Default Rating
Ba3 (LDG3, 48%) senior unsecured notes of $950 million
due 2016
Ba3 (LGD3, 48%) senior unsecured notes of $500 million
due 2017
Ba3 (LGD3, 48%) senior unsecured notes of $1 billion
due 2018
Ba3 (LGD3, 48%) senior unsecured notes of $700 million
due 2020
Ba3 (LGD3, 48%) senior unsecured notes of $650 million
due 2021
Ba3 (LGD3, 48%) senior unsecured notes of $550 million
notes due 2022
Ratings withdrawn following repayment and termination of the credit facility:
Baa3 (LGD1, 8%) Senior secured Term Loan A of $1 billion
Baa3 (LGD1, 8%) Senior secured revolving credit facility
of $125 million
RATINGS RATIONALE
The ratings review is prompted by Valeant's aggressive financial
policies reflected in the Cephalon bid, the increase in financial
leverage that would result from acquiring Cephalon under the proposed
terms, and the integration risks related to Valeant's rapid
pace of acquisitions.
"An acquisition of Cephalon would provide Valeant with new specialty
pharmaceutical products including several strong brands in neuroscience
and pain, and a stronger generics presence in Central Europe,"
stated Moody's Senior Vice President Michael Levesque.
"However, the acquisition offer comes shortly on the heels
of the Biovail/Valeant merger and highlights an extremely dynamic acquisition
strategy and aggressive financial policies," continued Levesque.
Moody's rating review will focus on: (1) final terms of any
deal that is consummated; (2) impact on credit metrics including
expectation of cost synergies, asset divestitures and deleveraging
potential; (3) integration risks, including strategies for
dealing with Cephalon's 2012 Provigil patent cliff; (4) Valeant's
financial policies including appetite for additional acquisitions and
share repurchases; and (5) the mix of debt in Valeant capital structure.
Currently Moody's rates Valeant's senior unsecured notes Ba3,
the same as the Corporate Family Rating due to the absence of any senior
secured debt. Under a scenario in which a substantial amount of
secured debt is added, the senior unsecured notes would likely be
rated below the Corporate Family Rating, and potentially by multiple
notches.
Moody's believes that under the currently proposed deal terms,
the rating impact on Valeant's Corporate Family Rating, if
any, would likely be limited to one notch. This expectation
reflects greater scale with over $4 billion of pro form revenues,
significant free cash flow, and potential for large merger synergies.
For additional information please refer to Moody's recent Credit Opinion
on Valeant Pharmaceuticals International, Inc.
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 Mississauga, Ontario, Valeant Pharmaceuticals
International, Inc. [NYSE: VRX] is a global specialty
pharmaceutical company formed from the merger of Biovail Corporation and
Valeant Pharmaceuticals International. Total revenues in 2010 were
$1.2 billion, consisting largely of legacy Biovail
revenues with Valeant revenues recorded beginning as of the September
28, 2010 merger date.
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.
New York
Michael Levesque
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Lenny J. Ajzenman
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 reviews Valeant's Ba3 for downgrade on Cephalon bid