Perrigo (PRGO) Ratings Affirmed, Removed from CreditWatch Negative by S&P

Standard & Poor's Ratings Services said that it affirmed all of its ratings on Perrigo Co. plc (NYSE: PRGO), including the 'BBB' corporate credit rating and 'BBB' senior unsecured debt ratings, removed all of the ratings from CreditWatch, where they were placed with negative implications on April 9, 2015, and assigned a negative outlook.

Perrigo's debt outstanding as of Sept. 26, 2015 was $5.4 billion.

The rating affirmation incorporates our view that, as an independent company, Perrigo will grow EBITDA at a mid-to-high single digit rate annually and prudently use its discretionary cash flow to make acquisitions, implement its recently announced stock repurchase program, and moderately reduce debt such that debt to EBITDA improves and is sustained below 3x. The negative outlook incorporates the risk of its financial policy becoming more aggressive than we currently assume, which could include higher than expected acquisition activity or share repurchases, resulting in debt to EBITDA remaining above 3x. We believe this scenario is possible considering that Mylan's failed hostile takeover attempt may incentivize Perrigo's management to increase its scale in the consolidating global healthcare industry in order to remain independent, or focus on stock repurchases to reward its shareholders. It's also possible that new suitors for Perrigo could emerge.

The outlook is negative. We could lower the rating if we believe Perrigo's financial policy will become more aggressive than we currently assume, which could include higher than expected acquisition activity or share repurchases, resulting in debt to EBITDA remaining above 3x over our forecast horizon. We believe this scenario is possible considering that Mylan's failed hostile takeover attempt may incentivize Perrigo's management to increase its scale in the consolidating global healthcare industry in order to remain independent, or focus on stock repurchases to reward its shareholders. We could lower the ratings if Perrigo faces increased competition in its generic OTC or prescription businesses, if demand for Tysabri drops significantly, or if the company encounters missteps integrating recent or future acquisitions.

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