Elan (ELN) On Rating Watch Positive at S&P
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After the close, S&P placed Elan's (NYSE: ELN) 'B+' corporate credit rating on Elan on CreditWatch with positive implications, pending completion of the proposed transaction.
The issue rating affirmation incorporates a cap on the recovery ratings of unsecured debt issued by 'BB-' category issuers at '3'. As a result, a one-notch upgrade of the corporate credit rating would correspond with a revision of the recovery rating on Elan's unsecured debt to a '3' from a '2', leaving the issue rating unchanged. The recovery rating cap is intended to account for the fact that recovery rates on unsecured debt of 'BB' category issuers have a high risk of being impaired by the issuance of additional debt.
"The ratings on Elan reflect our belief that the company will remain heavily dependent on its multiple sclerosis (MS) treatment, Tysabri," said Standard & Poor's credit analyst Michael Kaplan. This underlies a business risk profile that we consider "weak" (according to our criteria). However, the company has the potential to sharply reduce its operating costs with its singular product focus. Improved credit measures from an increase in patent-protected cash flows suggests that we will likely revise our assessment that the financial risk profile is "aggressive," and raise the corporate credit rating with the spin-off of the research-intensive drug discovery unit.
The issue rating affirmation incorporates a cap on the recovery ratings of unsecured debt issued by 'BB-' category issuers at '3'. As a result, a one-notch upgrade of the corporate credit rating would correspond with a revision of the recovery rating on Elan's unsecured debt to a '3' from a '2', leaving the issue rating unchanged. The recovery rating cap is intended to account for the fact that recovery rates on unsecured debt of 'BB' category issuers have a high risk of being impaired by the issuance of additional debt.
"The ratings on Elan reflect our belief that the company will remain heavily dependent on its multiple sclerosis (MS) treatment, Tysabri," said Standard & Poor's credit analyst Michael Kaplan. This underlies a business risk profile that we consider "weak" (according to our criteria). However, the company has the potential to sharply reduce its operating costs with its singular product focus. Improved credit measures from an increase in patent-protected cash flows suggests that we will likely revise our assessment that the financial risk profile is "aggressive," and raise the corporate credit rating with the spin-off of the research-intensive drug discovery unit.
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