Teva Gets Fresh Cash, Fresh Woes

After the troubled drugmaker finalized two deals that will enable it to repay some of its debt, S&P placed it on CreditWatch negative on Friday

Dror Reich 15:5004.02.18
On Friday, Standard & Poor's Global published a research update for Teva Pharmaceutical Industries Ltd., giving the company a CreditWatch negative rating. Teva currently has a BBB- corporate rating from the agency. On Thursday, Teva finalized the sale of its remaining Women’s Health assets for $703 million in cash, and settled its working capital arbitration with Allergan for $700 million. Both sums will be used towards Teva’s debt, the company said.


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S&P Global’s update was a result of Teva’s Thursday announcement about amendments to its financial leverage covenants. S&P Global’s CreditWatch service offers guidance for the likelihood that a company’s credit rating will be upgraded or downgraded.


Teva. Photo: Bloomberg Teva. Photo: Bloomberg



The amended covenants will now enable Teva to gradually increase its leverage ratio from the current 5 times to 5.9 times at third and fourth quarters of 2018, before gradually decreasing them to 3.5 by December 31, 2021. Under the new credit agreements, Teva will not resume its common share dividends while its net debt to EBITDA is above 4.75 times.


This is the second time Teva has amended its covenants in the past five months, said S&P Global in the update, and now its covenants are higher “by about a full turn of leverage in 2018 and a half turn in 2019.”


S&P Global also referred to an announcement made last week by Cambridge, Massachusetts-headquartered Momenta Pharmaceuticals Inc., in which the company said it believes its application review for a generic version of Copaxone could be completed at any time. If so, Momenta’s version will increase the pressure Teva is already experiencing in the U.S. Market after Mylan N.V. launched its generic version in October 2017.


Based on these developments, S&P Global’s update said, the agency sees significant risk that its 2018 and 2019 forecasts for Teva will be lowered yet again, and that this is indicative of a business that is less stable and predictable than S&P Global previously believed.


On Thursday, Teva announced it has come to an agreement with Allergan in their working capital arbitration. The settlement will see Allergan paying Teva a one-off payment of $700 million, which Teva intends to use for debt repayment. Allergan still owns most of the 100 million plus Teva shares it received in 2016 as part of Teva’s $40.5 billion acquisition of Allergan’s generic business Actavis Generics.


The extensive loans Teva took to finance the deal are at the heart of its current financial troubles, which saw the company announce a plan to shut-down multiple manufacturing sites, divest assets and let go 14,000 employees in December in an attempt to stabilize the company’s finances.


On Thursday, Teva announced it has completed the sale of its remaining Women’s Health assets outside the U.S. to Luxembourg-based private equity firm CVC Capital Partners for $703 million in cash, which will also be used to cover the company’s loans. Teva sold its intrauterine copper contraceptive Paragard business to medical equipment manufacturer CooperSurgical Inc. for $1.1 billion in cash in September.


S&P Global will resolve the CreditWatch after Teva’s fourth quarter call on February eight. In January, Moody’s Investors Service downgraded Teva’s credit to junk. Fitch Ratings Inc., the third “big three” credit rating agency, did so in November.
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