Moody's Adjusts Outlook on Elan (ELN) from Stablet to Developing; Affirms Ratings
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Moody's Investors Service revised the outlook on Elan Corporation, plc (NYSE: ELN) to developing from stable. At the same time Moody's affirmed Elan's existing ratings including the Ba3 Corporate Family Rating, the Ba2-PD Probability of Default Rating and the SGL-1 Speculative Grade Liquidity rating.
Ratings affirmed:
Elan Corporation, plc:
Ba3 Corporate Family Rating
Ba2-PD Probability of Default Rating
SGL-1 Speculative Grade Liquidity Rating
Elan Finance, plc:
Ba3 (LGD4, 65%) senior unsecured notes
The rating outlook is developing, based on Elan's announcement that the company is for sale. The acquisition of Elan by a company with a stronger credit profile could result in a rating upgrade, depending on the treatment of Elan's debt. An acquisition by a smaller company involving high leverage could result in a downgrade.
RATINGS RATIONALE
Elan's Ba3 Corporate Family Rating reflects its limited scale, its high product concentration even with the proposed Theravance royalties, and the risks associated with an evolving business strategy. The Ba3 rating is supported by positive trends in Tysabri and the long-dated nature of this royalty stream, given an extremely small risk of generic competition. Elan's proposed acquisition of Theravance royalties provides Elan with product diversification as well as supplemental growth potential in 2014 and beyond, but is highly dependent on uptake in Breo Ellipta and regulatory approvals on the remaining 3 Theravance/GSK assets. Breo Ellipta could become a blockbuster product, although its rate of market acceptance is not certain and substantial returns to Elan could be protracted. Moody's anticipates that Elan will continue business development, but the targets are difficult to predict given that some have been financial assets (the Theravance royalties) while others have been companies with operating risks (AOP). The rating also reflects Elan's very good liquidity and expectations of rising EBITDA and cash flow generated by its primary asset, Tysabri. Moody's anticpates that Elan's FCF/debt will exceed 20% in 2014 and 30% in 2015.
If a sale does not occur, then over time the ratings could be upgraded with greater diversification of revenue, longer track record of successful acquisitions, and debt/EBITDA sustained below 3.0 times. Conversely, the ratings could be downgraded if debt/EBITDA is sustained above 4.0 times. This could occur if Tysabri suffers a significant downtrend in utilization, or Elan raises its debt levels for share repurchases or acquisitions that do not generate immediate EBITDA.
Ratings affirmed:
Elan Corporation, plc:
Ba3 Corporate Family Rating
Ba2-PD Probability of Default Rating
SGL-1 Speculative Grade Liquidity Rating
Elan Finance, plc:
Ba3 (LGD4, 65%) senior unsecured notes
The rating outlook is developing, based on Elan's announcement that the company is for sale. The acquisition of Elan by a company with a stronger credit profile could result in a rating upgrade, depending on the treatment of Elan's debt. An acquisition by a smaller company involving high leverage could result in a downgrade.
RATINGS RATIONALE
Elan's Ba3 Corporate Family Rating reflects its limited scale, its high product concentration even with the proposed Theravance royalties, and the risks associated with an evolving business strategy. The Ba3 rating is supported by positive trends in Tysabri and the long-dated nature of this royalty stream, given an extremely small risk of generic competition. Elan's proposed acquisition of Theravance royalties provides Elan with product diversification as well as supplemental growth potential in 2014 and beyond, but is highly dependent on uptake in Breo Ellipta and regulatory approvals on the remaining 3 Theravance/GSK assets. Breo Ellipta could become a blockbuster product, although its rate of market acceptance is not certain and substantial returns to Elan could be protracted. Moody's anticipates that Elan will continue business development, but the targets are difficult to predict given that some have been financial assets (the Theravance royalties) while others have been companies with operating risks (AOP). The rating also reflects Elan's very good liquidity and expectations of rising EBITDA and cash flow generated by its primary asset, Tysabri. Moody's anticpates that Elan's FCF/debt will exceed 20% in 2014 and 30% in 2015.
If a sale does not occur, then over time the ratings could be upgraded with greater diversification of revenue, longer track record of successful acquisitions, and debt/EBITDA sustained below 3.0 times. Conversely, the ratings could be downgraded if debt/EBITDA is sustained above 4.0 times. This could occur if Tysabri suffers a significant downtrend in utilization, or Elan raises its debt levels for share repurchases or acquisitions that do not generate immediate EBITDA.
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