TEXT-S&P assigns Valeant term loan 'BBB-' rating
Sept 7 - Standard & Poor's Ratings Services said today that it assigned its 'BBB-' issue-level rating and '1' recovery rating to Montreal-based pharmaceutical company Valeant Pharmaceuticals International Inc.'s proposed $1 billion term loan B due 2019. The '1' recovery rating reflects our expectation of very high (90%-100%) recovery in the event of payment default. At the same time, we assigned our 'BB-' issue-level rating and '5' recovery rating to wholly owned subsidiary Valeant Pharmaceuticals International's proposed $2.25 billion of senior unsecured notes due 2020-2022. The '5' recovery rating reflects our expectation of modest (10%-30%) recovery in the event of payment default. All other ratings, including the 'BB' corporate credit rating, remain unchanged. The company will use proceeds from the term loan and unsecured note issuances to fund the $2.6 billion acquisition of Medicis Pharmaceutical Corp. (unrated). The remaining proceeds will be used to fund smaller tuck-in acquisitions and product rights purchases. The rating reflects our belief that Valeant remains committed to a "significant" financial risk profile. The rating affirmation on Sept. 5, 2012 was based on a modest increase in adjusted pro forma leverage, which we calculate at approximately 4.5x. We believe the company will use its strong cash flows to reduce leverage to less than 4x within one year, in line with their stated financial policy of keeping leverage at 4x or less (per the credit agreement calculation). At this time, we view the acquisition as neutral to our view that Valeant has a "fair" business risk profile. Our consideration of Valeant's business risk profile as fair reflects the benefits of a broader product portfolio, geographic diversification, and expanded pipeline it has achieved through multiple acquisitions over the past two years. While the acquisition of Medicis makes Valeant the largest U.S. dermatology company (pro forma on the basis of reported gross sales), it is also the second-largest acquisition in Valeant's history. We believe the benefits of the acquisition are offset by the potential for integration issues with Medicis and the potential challenges of managing a very large portfolio of small products given the high acquisition activity. In our opinion, the high level of acquisition activity increases the possibility that integration issues could jeopardize our base-case scenario. RELATED CRITERIA AND RESEARCH -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009 -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATINGS LIST Valeant Pharmaceuticals International Inc. Corporate Credit Rating BB/Stable/-- New Ratings Valeant Pharmaceuticals International Inc. $1 bil term loan B due 2019 BBB- Recovery Rating 1 Valeant Pharmaceuticals International Senior Unsecured $2.25 bil nts due 2020-2022 BB- Recovery Rating 5 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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