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Rating Action:

Moody's upgrades Huvepharma's CFR to Ba3; stable outlook

19 Feb 2016

London, 19 February 2016 -- Moody's Investors Service, ("Moody's") has today upgraded the corporate family rating (CFR) to Ba3 from B1 and the probability of default rating (PDR) to B1-PD from B2-PD of Huvepharma International BV (Huvepharma), a vertically integrated developer, manufacturer and distributor of a wide range of animal health products to livestock animals. The outlook on all ratings is stable.

Concurrently, Moody's has upgraded to Ba3 from B1 the ratings of the existing EUR75 million senior secured term loan A due in 2019, the EUR180 million senior secured term loan B due in 2020, and a senior secured revolving credit facility due in 2019, the amount of which was extended to EUR40 million from the initial EUR20 million. Moody's also assigned a Ba3 rating to the new $16 million senior secured term loan A2 due in 2019, $44 million senior secured term loan B2 due in 2020, EUR48 million senior secured capex facility due in 2019, and EUR45 million senior secured acquisition facility due in 2020.

Moody's expects that Huvepharma will use the proceeds from the senior secured term loans A2 and B2 to finance the acquisition of Zoetis' assets. The capex and acquisition facilities will support Huvepharma's further expansion plans in the upcoming years, while the increased revolver will enhance its liquidity position.

RATINGS RATIONALE

Today's upgrade of Huvepharma's ratings to Ba3 reflects its robust financial performance, well ahead of our initial expectations driven by strong and profitable growth, healthy cash flow generation and conservative financial policy. Despite a substantial step up in leverage in 2014 following the debt-funded buyback transaction with adjusted debt/EBITDA increasing to 3.9x from below 1.5x in 2012-13, the company's leverage remained significantly below the level Moody's initially expected, of around 4.9x. The company also proved its ability to quickly deleverage with adjusted debt/EBITDA reducing to 3.3x in Q3 2015.

Moody's understands that Huvepharma will continue to pursue its ambitious plans to grow at double-digit annual rates while maintaining an adjusted EBITDA margin at above 20%. While the company's primary focus will remain on organic growth, supported by a strong new products pipeline and overall solid fundamentals of the animal health market, it is also considering M&A deals as part of its business development strategy. The company recently announced the acquisition of a number of assets from its peer Zoetis Inc. (Baa2 stable) which will be complimentary to the company's existing business in terms of sales, marketing, technical support, and manufacturing capacity.

Despite a substantial increase in investments on capex and M&A in 2016 to support growth, Moody's expects that Huvepharma will generate sufficient EBITDA and cash flows to comply with Moody's guidance for a Ba3 rating. Although there might be a temporary increase in adjusted leverage, the rating agency expects that it should remain below 4.0x and that the company will be quickly back on track within its deleveraging plan.

The company's financial profile and liquidity are further supported by (1) additional protection from a number of restrictions under the facilities agreement regarding M&A activity, shareholder distributions and leverage; (2) the long-term maturity profile of the company's debt portfolio; and (3) the discretionary nature of up to 80% of the planned capex, which the company can easily defer in case of weaker-than-expected operating results and cash flows.

Huvepharma's Ba3 rating is mainly constrained by its small size and its concentration in livestock, in particular poultry and swine. These factors are partly offset by the company's (1) strong position in key niche segments; and (2) balanced diversification across products, geographies and customer base. Huvepharma is also reasonably well positioned to withstand any potential regulatory pressure related to the use of antibiotics given the company's focus on developing products to offset a potential reduction in the use of antibiotics.

STRUCTURAL CONSIDERATIONS

Moody's rates the new term loans A2 and B2, acquisition and the capex facility at Ba3, in line with the existing facilities, because they are arranged as an extension of the original credit facilities package and rank pari-passu with each other in accordance with the intercreditor agreement.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that the company will continue to deliver on its growth strategy as planned, while maintaining robust operating performance and a solid liquidity profile. This should allow the company to maintain its adjusted debt/EBITDA at below 4.0x taking into account any potential M&A transactions.

WHAT COULD CHANGE THE RATING UP/DOWN

We do not expect any positive pressure on the rating in the short term. Over time, Moody's would consider upgrading Huvepharma's rating if the company were to (1) materially increase its scale and continue demonstrating robust operational performance; (2) reduce its leverage (measured as adjusted debt/EBITDA) to below 3.0x while sustaining retained cash flow to net debt at above 20%; and (3) maintain a strong liquidity profile and positive free cash flow generation.

Negative pressure would develop on the company's ratings in the event of (1) a material deterioration in Huvepharma's competitive position within its core product lines; (2) a negative impact on its operating performance owing to increasing regulatory risks; or (3) other related developments that could weaken its liquidity position, or increase the company's leverage, with adjusted debt/EBITDA trending towards 4.5x and retained cash flow/net debt towards low teens in percentage terms on a sustained basis.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Huvepharma International BV is a parent company for Huvepharma EOOD. Headquartered in Sofia, Bulgaria, Huvepharma EOOD is a vertically integrated developer, manufacturer and distributor of a wide range of animal health products for livestock animals, with a focus on the poultry and swine markets. Huvepharma sells its products in more than 95 countries, with Europe and North America being its key markets. In 2014, the company generated EUR242 million of revenues.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Ekaterina Lipatova
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Huvepharma's CFR to Ba3; stable outlook
No Related Data.
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