S&P Affirms Ratings on Concordia Int'l (CXRX); Lowers Outlook to Negative

S&P Global Ratings affirmed its 'B' corporate credit rating on Concordia International Corp. (Nasdaq: CXRX) and revised the rating outlook to negative from stable.

At the same time, we lowered our issue-level rating on the company's senior secured debt to 'B' from 'B+' and affirmed our 'CCC+' rating on the unsecured debt. We revised the recovery rating on the senior secured debt to '3' from '2', indicating expectations for meaningful (50%-70%, at the higher end of the range) recovery in the event of a payment default. The recovery rating on the unsecured debt remains '6', reflecting our expectation for negligible (0%-10%) recovery in the event of a payment default.

We are also assigning a 'B' issue-level rating to the company's $350 million senior secured notes. The recovery rating is '3', indicating expectations for meaningful recovery at the high end of the 50% to 70% range.

"The outlook revision on Concordia International follows our downward revision to 2016 EBITDA and expectations for higher leverage as a result of heightened competitive pressures in North America and the impact of Brexit on the international business segment. In addition, a bill introduced into the House of Commons in the UK last month could give the National Health Service control of generic drug pricing in instances where market competition fails and where unreasonable prices are charged," said credit analyst Kim Logan. "This proposed legislation could limit price adjustments on some of the company's generic drugs currently facing limited competition. More importantly, we have doubts about the company's ability to achieve our cash flow forecast and have revised our liquidity assessment to less than adequate given the company's need for supplemental liquidity."

The negative outlook reflects our doubts about the company's ability to achieve our cash flow forecast and our revised liquidity assessment to less than adequate given the company's need for supplemental liquidity. We continue to expect that leverage will remain above 6x over the next two years.

We could lower the rating if Concordia is unable to raise capital via the announced notes offering or by other means to strengthen its liquidity. The company's margins are very high and a minor decline in revenue could have a meaningful impact on EBITDA. We could also lower the rating if cash flows after the milestone payments deteriorate significantly.

We could revise the outlook back to stable if the company improves its liquidity position and we gain confidence that its 2017 adjusted EBITDA will be close to our forecast. Although unlikely over our one year forecast period, we could raise the rating if the company demonstrates a track record of executing on its strategy, which is driven by acquisitions and new product introductions, while maintaining leverage below 6x. In order for the company to accomplish this, we believe Concordia has to maintain its strong margins and generate solid, sustainable organic revenue growth.

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