Moody's Revises Outlook on Valeant Pharma (VRX) to Stable; Affirms Ratings

Moody's Investors Service affirmed the ratings of Valeant Pharmaceuticals International, Inc. (NYSE: VRX) including the Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating, Ba1 senior secured ratings, and B1 senior unsecured ratings. At the same time, Moody's revised Valeant's rating outlook to stable from developing.

This rating action follows recent developments in Valeant's offer to acquire Allergan, Inc. (NYSE: AGN) including the announcement that Allergan has entered into a definitive merger agreement with Actavis, Inc (NYSE: ACT). This was followed recently by Valeant's formal cancellation of its offer.

Ratings affirmed:

Valeant Pharmaceuticals International, Inc.:

....Ba3 Corporate Family Rating

....Ba3-PD Probability of Default Rating

....Ba1 (LGD2) senior secured term loans and revolving credit agreement

....B1 (LGD5) senior unsecured notes

....SGL-1 Speculative Grade Liquidity Rating

Valeant Pharmaceuticals International:

....B1 (LGD5) senior unsecured notes

The stable outlook represents Moody's expectations that Valeant's future acquisitions can likely be accommodated within the current rating level based on the willingness and ability to reduce debt/EBITDA to approximately 4.0 times. Any transformative acquisitions that significantly improve Valeant's scale and diversity without materially increasing leverage could have positive credit implications, but Moody's will assess such a deal if it materializes.

RATINGS RATIONALE

Valeant's Ba3 Corporate Family Rating reflects its medium albeit growing scale in the global pharmaceutical industry, its strong diversity, its high profit margins, and its good cash flow. The ratings are also supported by low exposure to patent cliff risks, good near-term organic growth , and a successful acquisition track record. The rating also reflects the risks associated with an aggressive acquisition strategy, including moderately high financial leverage, integration risks, rapid capital structure changes, and reliance on cost synergies. Valeant's debt/EBITDA measured approximately 4.0 times as of September 30, 2014. Notwithstanding successful deleveraging over the past 12 months, Moody's anticipates that Valeant's acquisition strategy will often keep debt/EBITDA elevated above this level. In addition, it may be challenging to sustain solid organic top-line growth after the initial benefits of an acquisition, e.g. price increases and product launches, given that Valeant significantly downsizes the R&D function of acquired companies.

The rating outlook is stable. Valeant's ratings could be upgraded if Moody's believes debt/EBITDA will be sustained below 4.0 times while maintaining good organic growth. Conversely, Valeant's ratings could be downgraded if Moody's believe debt/EBITDA will be sustained above 5.0 times or if other risk factors emerge, such as litigation or regulatory compliance issues.

The principal methodology used in these ratings was Global Pharmaceutical Industry published in December 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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