Mylan N.V. #BBB-# Ratings Affirmed On Planned A Outlook Stable

Stocks and Financial Services Press Releases Friday February 12, 2016 09:13
TORONTO--12 Feb--Standard & Poor's

TORONTO (Standard & Poor's) Feb. 11, 2016--Standard & Poor's Ratings Services said today it affirmed its 'BBB-' corporate credit rating and all existing issue-level ratings on Mylan N.V. The outlook is stable.

Mylan has announced it is acquiring Sweden-based pharmaceutical maker Meda AB for $9.9 billion, which includes the debt at Meda. The acquisition adds more than $2 billion in annual sales of generic, branded, and over-the-counter drugs to Mylan, strengthens its European franchise, and expands Mylan into a several new territories.

"Although the transaction, funded with roughly 80% cash and 20% Mylan stock, drives Mylan's pro forma adjusted leverage to roughly 4x, we project that organic growth, realized synergies, and deleveraging will lower net leverage to below 3x area by the end of 2017," said Standard & Poor's credit analyst Arthur Wong.

Although Mylan's credit measures have been improving over the past year, with leverage currently at well under 3x, we believe that it is unlikely that the company will sustain leverage at these levels, given its acquisitiveness.

Still, our current assumption is for Mylan to moderate its appetite for acquisitions after the Meda transaction closes. The company recently dropped its bid to acquire over-the-counter drug maker Perrigo Co. PLC for $29 billion. We believe Mylan will focus on integrating Meda, realizing synergies and cost savings, and de-leveraging over the next two years. The company will likely still pursue acquisitions, but any will likely be of the tuck-in variety.

The stable outlook on Mylan reflects our expectation that the company will pursue other leveraging acquisitions, and though leverage may stray above 4x temporarily, longer-term leverage should remain in the 3x to 4x range.

We could lower the rating if the company makes an acquisition that could result in leverage sustained above 4x. With the company's expected leverage after the Meda acquisition, we believe there is limited (roughly $2 billion) capacity for further acquisitions. However, given Mylan's expected ample free cash flow and ability to deleverage, that capacity should grow.

To consider a higher rating, Mylan would need to sustainably reduce leverage below 3x. We would need to have confidence that the company is committed to this leverage level as it pursues growth and shareholder-friendly actions.


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