BRIEF-Viamet Pharmaceuticals Holdings LLC raises about $12 mln in equity financing
* Viamet Pharmaceuticals Holdings LLC says it has raised about $12 million in equity financing - SEC filing
(The following statement was released by the rating agency) Overview -- Italy-based health care group Rottapharm has raised EUR400 million of senior unsecured notes to refinance its upcoming debt maturities. -- We assess Rottapharm's business risk profile as "fair" and its financial risk profile as "aggressive." -- We are assigning our 'BB-' long-term corporate credit rating to Rottapharm and our 'BB-' issue rating to the senior note. -- The stable outlook reflects our view that Rottapharm's operational underperformance has bottomed out, and that the group will continue to generate positive cash flows. Rating Action On Dec. 21, 2012, Standard & Poor's Ratings Services assigned its 'BB-' long-term corporate credit rating to Italy-based pharmaceuticals group Rottapharm SpA. The outlook is stable. At the same time, we assigned our 'BB-' issue rating to the EUR400 million senior unsecured notes due 2019 issued by Rottapharm Ltd. We also assigned a recovery rating of '3' to these notes, indicating our expectation of meaningful (50%-70%) recovery in the event of a payment default. Rationale The ratings on Rottapharm reflect our view of the group's "fair" business risk profile, supported by a profitable and diversified portfolio of products. However, 31% of these products are reimbursed and exposed to pricing pressure as a result of austerity measures being implemented in Europe. The ratings also reflect Rottapharm's "aggressive" financial risk profile, with Standard & Poor's-adjusted funds from operations (FFO) to debt of less than 20% and debt to EBITDA in the 3x-4x range, but resilient free cash flow generation. Our assessment of Rottapharm's business risk profile reflects the group's relatively small size, and its exposure to both southern Europe (about 47% of revenues) and changes in government reimbursement policies. We anticipate that austerity measures and cuts in public funding will put pressure on prices in Europe for the rest of 2012 and 2013. The group's sales and EBITDA declined in both 2010 and 2011, primarily reflecting unexpected cuts in reimbursement rates and disruptions to revenues in Thailand due to floods. These events have in our view reduced the group's visibility of future earnings. Partly mitigating these weaknesses are Rottapharm's well-established brands and their positions in the niche semi-ethical (available both with and without prescription) and over-the-counter product categories. Clinical studies support the products' efficacy. This allows Rottapharm to charge premium prices, evident in the group's relatively strong operating margin of about 28%. Furthermore, Rottapharm is continuing its strategy of transferring certain products to the nonreimbursement, self-payment, and semi-ethical categories, which currently account for about 70% of sales. This could prove beneficial to the group's profitability if it is able capitalize on its brand name and retain relationships with clients such as patients, doctors, and pharmacists. Additional support stems from Rottapharm's relatively well-diversified product portfolio, with the 10 top-selling products accounting for about one-half of the group's sales. Rottapharm's two largest markets--Italy and Germany--accounted for about 31% and 14% of 2011 revenues, respectively. We consider that favorable demographics, in particular aging populations, and good exposure to emerging markets (19% of revenues) should support Rottapharm's growth prospects over the medium to long term. Under our base-case scenario, we anticipate that Rottapharm's sales will increase modestly in 2012 and 2013. Likewise, we anticipate that the group's EBITDA margin will remain at 28% in both years, in line with the margin in 2011. Future growth will stem from the rollout of glucosamine in emerging markets, the expansion of the Saugella brand of personal hygiene products into Italy, and the expansion of Rottapharm's range of over-the-counter and generic drugs, which should improve its product mix and profitability. Our assessment of Rottapharm's financial risk profile takes into account our view that the group's adjusted FFO to debt will not improve significantly in 2012. The group's adjusted debt-to-EBITDA ratio stood at 3.7x at year-end 2011 and we estimate that its leverage ratio will peak at 3.8x at year-end 2012, when it establishes the new financial structure. We anticipate that Rottapharm's annual capital expenditure will not exceed EUR10 million and that this, together with the group's strong profitability and its cash conversion, will help it to generate strong free cash flow that we estimate will be about EUR75 million in 2013. We anticipate that Rottapharm will dedicate almost all of its free cash flows to reducing net debt, except about EUR10 million that it will upstream as dividends to service the debt of its controlling shareholder, Fidim Srl. Fidim carried gross debt of about EUR240 million at year-end 2011. Consequently, we consider that Standard & Poor's-adjusted leverage could decrease to about 3.4x at year-end 2013 and 3.0x at year-end 2014, subject to its dividend and acquisition policy. This would reflect the group's medium-term target of 2.0x-2.5x on a reported basis. Equally importantly, we take the view that EBITDA cash interest coverage will comfortably exceed 3.5x. Liquidity We consider Rottapharm's liquidity to be "adequate" as our criteria define the term. We base our liquidity assessment on the following factors: -- Rottapharm's liquidity sources (including cash, FFO, and an available credit facility) should comfortably exceed its uses by more than 1.2x over the next 12 months. Even if EBITDA were to decline by 15%-20%, we believe that net sources would remain positive. -- The group has a long-term debt maturity profile after the refinancing. The EUR400 million senior notes will mature in 2019. -- We anticipate that mandatory loan amortization of EUR30 million and EUR20 million in 2013 will be covered by free cash flows that we forecast will exceed EUR50 million per year. We anticipate that the group will maintain adequate headroom under its bank facilities. -- Rottapharm currently has no available revolving credit facility, since the EUR100 million line with Mediobanca has been fully drawn but the maintenance of cash in excess of EUR100 million mitigates this. Recovery analysis The issue rating on the proposed EUR400 million senior unsecured notes due 2019 (the notes), to be issued by Rottapharm Ltd., is 'BB-', in line with the preliminary corporate credit rating on Rottapharm. The recovery rating on the notes is '3', indicating our expectation of meaningful (50%-70%) recovery prospects in an event of default. The issue and recovery ratings reflect our valuation of Rottapharm as a going concern, underpinned by our view that the group's product portfolio and established brand names would retain significant value at our simulated point of default. Recovery prospects are constrained by our view of the Italian insolvency regime as relatively unfavorable for creditors, and the unsecured nature of the notes. These factors lead us to a cap the recovery rating on the notes at '3' despite numerical coverage slightly in excess of 70%. We believe that the notes benefit from stronger structural protection than Rottapharm's bank debt by virtue of subsidiary guarantees granted to the notes that are not available to bank lenders. However, our view is that the relative advantage to noteholders will decrease over time because we assume that, by the time of our simulated point of default, a major part of the bank debt would have amortized, and so the notes would account for a large majority of the group's indebtedness. All the group's debt facilities are unsecured, with the notes benefitting from guarantees representing about 88% and 82% of consolidated EBITDA and assets, respectively, as of June 30, 2012. The guarantees include one from Rottapharm. The unsecured bank debt does not benefit from these guarantees, with recourse for bank lenders limited to parent company Rottapharm. Although Rottapharm is a material operating entity in its own right, it accounts only for about 47% of consolidated EBITDA. In our view, the documentation for the notes is weaker than the loan documentation. The loan benefits from maintenance covenants, whereas the notes benefit from incurrence covenants. Over time, we consider that this could lead to bank lenders achieving better terms, protection, or collateral than the noteholders in the event that Rottapharm breaches a maintenance covenant. A key protection for noteholders is that, according to the notes' documentation, if Rottapharm provides security interests to its creditors in the future, it must enter an intercreditor agreement to restore the pari passu ranking and sharing of enforcement proceeds of any security it grants. We note, however, that the bank debt documentation does not include a similar clause. To calculate recoveries, we simulate a default scenario that assumes a potential combination of the following: -- A decline in revenues in the reimbursed prescription drugs segment, due to austerity measures in Europe reducing prices; and -- Lower growth in the semi-ethical drugs segment, stemming from shrinking consumer spending in most European markets and increasing competition for some key products. This hypothetical scenario leads to a default in 2016, with EBITDA declining to about EUR72 million. We believe that if Rottapharm were to default, reorganization would yield greater value for lenders than liquidation. We value the business on a going-concern basis, based on a market-multiple approach. We estimate the gross stressed enterprise value at the simulated point of default at about EUR397 million, using a 5.5x EBITDA multiple. After deducting about EUR60 million of priority liabilities--comprising enforcement costs and a part of the unfunded pension deficit--from our gross stressed enterprise value, we estimate that the outstanding unsecured notes would amount to about EUR455 million, including prepetition interest, and that coverage would therefore exceed 70%. However, in line with our criteria for rating unsecured debt, we cap our recovery rating on the notes at '3'. Outlook The stable outlook reflects our view that Rottapharm's operational underperformance has bottomed out and that the group will continue to generate positive cash flows. We expect EBITDA to stabilize in 2012 and recover from 2013. The group's solid portfolio and its presence in emerging markets should fuel future growth and offset possible additional pricing pressure in southern Europe. We assume low-single-digit revenue growth over the next 12-18 months and believe that the group's operating margin will remain resilient to possible pressure on the pricing of some of its prescription drugs. We anticipate a steady improvement of the group's debt protection measures on the back of healthy free cash flows that we estimate will exceed EUR50 million every year on a sustainable basis. We view adjusted FFO to debt of more than 12% as commensurate with the 'BB-' rating. Consequently, anything less than this would place the ratings would under pressure. Rating pressure could also arise if the group's sales and profitability deteriorated following last year's underperformance. Ratings upside is contingent on adjusted FFO to debt in excess of 20%, as well as on evidence of growth in the group's EBITDA after the decline of 2011 and the stabilization we anticipate in 2012. Related Criteria And Research All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated. -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Criteria Guidelines For Recovery Ratings On Global Industrial Issuers' Speculative-Grade Debt, Aug. 10, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 Ratings List New Ratings Rottapharm SpA Corporate Credit Rating BB-/Stable/-- Rottapharm Ltd. Senior Unsecured Debt* BB Recovery Rating 3 *guaranteed by Rottapharm SpA (Caryn Trokie, New York Ratings Unit)
* Viamet Pharmaceuticals Holdings LLC says it has raised about $12 million in equity financing - SEC filing
* Requests that their press release entitled "Teva announces launch of generic Epzicom(reg) tablets in United States" be killed
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