Moody's Downgrades Teva Pharma (TEVA) to 'Baa2' Amid Completion of Actavis Generics Deal

Moody's Investors Service, ("Moody's") downgraded the senior unsecured ratings of Teva Pharmaceutical Industries Ltd (NYSE: TEVA) and select subsidiaries to Baa2 from Baa1. The ratings on debt at several other Teva subsidiaries, which were assigned on July 18 are unchanged at Baa2. This concludes the review for downgrade initiated on July 27, 2015. The outlook is stable.

This rating action follows the Federal Trade Commission's clearance for Teva's acquisition of Allergan's generics business and the subsequent closing of the transaction on August 2, 2016.

The following ratings were downgraded:

..Issuer: Teva Pharmaceutical Fin. Co B.V. (Curacao)

....Multiple Seniority Shelf, to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa1

..Issuer: Teva Pharmaceutical Finance Company, LLC

....Senior Unsecured Conv./Exch. Bond/Debenture, to Baa2 from Baa1

....Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa1

..Issuer: Teva Pharmaceutical Finance IV B.V.

....Multiple Seniority Shelf, to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa1

..Issuer: Teva Pharmaceutical Finance IV, LLC

....Multiple Seniority Shelf, to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa1

..Issuer: Teva Pharmaceutical Finance Netherlands II BV

....Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa1

..Issuer: Teva Pharmaceutical Finance V B.V.

....Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa1

..Issuer: Teva Pharmaceutical Finance VI, LLC

....Multiple Seniority Shelf, to (P)Baa2 from (P)Baa1

..Issuer: Teva Pharmaceutical Industries Ltd

.... Issuer Rating, to Baa2 from Baa1

....Multiple Seniority Shelf, to (P)Baa2 from (P)Baa1

All other ratings for Teva subsidiaries remain unchanged.

The rating outlooks are stable.

RATINGS RATIONALE

The Baa2 rating reflects Teva's significant scale, global diversity, and position as the world's largest generic drug company, as well as one of the largest manufacturers of active pharmaceutical ingredients (API). The Baa2 rating is also supported by the company's strong and stable cash flow. The rating is constrained by Teva's high financial leverage following the Allergan generics acquisition. Moody's estimates adjusted debt/EBITDA will approximate 4.7x on a pro forma basis. The rating is also constrained by integration risk, as the Allergan generics acquisition will be the largest in Teva's history. Teva's leverage will decline as the company repays debt with cash flow. However Moody's believes that Teva will continue to make bolt-on acquisitions, which will constrain the pace of debt repayment. The ratings are also constrained by the company's profit concentration in Copaxone (a drug to treat multiple sclerosis), which Moody's estimates will generate about one-third of the company's profits.

The stable outlook balances Teva's strong cash flow and ability to repay debt with Moody's expectation that the company will continue to pursue bolt-on acquisitions.

Moody's could upgrade the ratings if Teva successfully integrates the Allergan generics business and realizes significant synergies. Further, if Moody's believes that Teva will maintain adjusted debt to EBITDA below 3.0x, the ratings could be upgraded.

Moody's could downgrade the ratings if Teva fails to realize a meaningful portion of the Allergan synergies, faces rapid erosion in Copaxone, or experiences significant headwinds in the generics business. If Moody's believes that Teva's leverage will not decline toward 3.5x within 18 months of the Allergan generics acquisition, the ratings could be downgraded. Significant acquisitions or shareholder friendly activity before the company has substantially deleveraged may also result in downward rating pressure.

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