S&P Assigns 'B+' Rating to Salix Pharma (SLXP); Outlook Stable
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Standard & Poor's Ratings Services today assigned its 'B+' corporate credit rating to Raleigh, N.C.-based Salix Pharmaceuticals Ltd. (Nasdaq: SLXP). The rating outlook is stable.
At the same time, we assigned a 'BB' issue-level rating to Salix's $1.35 billion senior secured credit facility. The facility consists of a $150 million revolver due 2018 and a $1.2 billion term loan B due 2019. The senior secured recovery rating is '1', indicating our expectation of very high (90%-100%) recovery in the event of payment default.
We also assigned a 'B' issue-level rating to Salix's $750 million senior unsecured notes due 2017. The senior unsecured recovery rating is '5', indicating our expectation for modest (10%-30%) recovery in the event of payment default.
"Our rating on Salix reflects our belief that initial leverage of 7x (excluding synergies) will decline rapidly from EBITDA growth, combined with strong free cash flow and the company's commitment to reduce debt," said Standard & Poor's credit analyst David Kaplan. "The rating also reflects a high degree of product and therapeutic concentration; we estimate that Xifaxan will continue to represent around 50% of revenues over the next few years, while the top two products--Xifaxan and Uceris--will represent about 65% of revenues after the 2016 patent expirations for Glumetza and Zegerid."
The stable outlook reflects our expectation that double-digit revenue growth and margin expansion will support the generation of strong free cash flow, which we expect will be primarily used for debt reduction. We expect leverage to decline below 5x within 18 months.
At the same time, we assigned a 'BB' issue-level rating to Salix's $1.35 billion senior secured credit facility. The facility consists of a $150 million revolver due 2018 and a $1.2 billion term loan B due 2019. The senior secured recovery rating is '1', indicating our expectation of very high (90%-100%) recovery in the event of payment default.
We also assigned a 'B' issue-level rating to Salix's $750 million senior unsecured notes due 2017. The senior unsecured recovery rating is '5', indicating our expectation for modest (10%-30%) recovery in the event of payment default.
"Our rating on Salix reflects our belief that initial leverage of 7x (excluding synergies) will decline rapidly from EBITDA growth, combined with strong free cash flow and the company's commitment to reduce debt," said Standard & Poor's credit analyst David Kaplan. "The rating also reflects a high degree of product and therapeutic concentration; we estimate that Xifaxan will continue to represent around 50% of revenues over the next few years, while the top two products--Xifaxan and Uceris--will represent about 65% of revenues after the 2016 patent expirations for Glumetza and Zegerid."
The stable outlook reflects our expectation that double-digit revenue growth and margin expansion will support the generation of strong free cash flow, which we expect will be primarily used for debt reduction. We expect leverage to decline below 5x within 18 months.
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