S&P Upgrades Allergan (AGN) to 'BBB'; Removes from CreditWatch

August 9, 2016 10:27 AM EDT

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S&P Global Ratings raised its corporate credit rating on Allergan PLC (NYSE: AGN) to 'BBB' from 'BBB-', and removed the rating from CreditWatch, where we placed it with positive implications on July 28, 2015. The outlook is positive.

At the same time, we raised the ratings on the senior unsecured debt to 'BBB' from 'BBB-' and removed the ratings from CreditWatch, where we placed them with positive implications on July 28, 2015.

With the sale of the generics business and Anda distribution, Allergan is sharpening its focus on its branded portfolio and transforming itself into a high-growth specialty pharmaceutical company. "We believe Allergan's specialty business is relatively stronger than the previous generics business, and given its sizable cash reserves we expect the company to strengthen and grow its branded portfolio and pipeline through strategic acquisitions," said S&P Global Ratings credit analyst Kim Logan. The share of the proceeds that Allergan applies to prepay debt should result in a modest near-term incremental deleveraging of its capital structure. We also believe that the resources Allergan retains on its balance sheet will lessen its need to rely on debt financing for future acquisitions. As a consequence, we believe that leverage spikes in excess of 4x are less likely following this transaction.

Allergan's specialty business consists of a diverse portfolio of products with a primary focus on seven therapeutic areas including the central nervous system (CNS), gastroenterology, ophthalmology, and women's health segments.

We could raise our rating on Allergan if the company successfully deleverages to below 3.0x and maintains leverage at this level. To attain this level, we expect that Allergan would have to deploy capital such that its acquisitions are immediately accretive to earnings. Because we expect the company to remain aggressive with respect to acquisitions, we do not assume that a scenario for leverage to fall under 3x without acquisitions is likely.

Although less likely, we could revise the outlook to stable or lower our rating if the company seeks very large debt-financed acquisitions that contribute very little EBITDA or if it shifts its financial policy toward a significant increase in share repurchases resulting in debt to EBITDA above 4x. We believe Allergan has significant debt capacity of over $20 billion at the current rating.



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