JPMorgan downgrades Teva bonds

Analysts Brett Gibson and Arun Ku find liquidity a concern at the Israeli pharmaceuticals giant.

"Liquidity a concern", says JPMorgan in a review of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) bonds. Following the departure of CEO Jeremy Levin, JPMorgan cut its recommendation for Teva's bonds from "Neutral" to "Underperform".

"Teva’s announcement today that Jeremy Levin is stepping down (effective immediately) as CEO due to disagreements with the board of directors comes as a surprise and adds another layer to the ongoing uncertainty at the company," say analysts Brett Gibson and Arun Kumar. They note that Moody's gives Teva's bonds an A3 rating with a "Negative" outlook, and that S&P gives them an A- rating with a "Stable" outlook, but warn that the "ratings will come under pressure over the next 6-9 months as further light falls on the fate of the Copaxone franchise and liquidity pressures cause the company to raise additional debt and/or draw on its revolver."

Gibson and Kumar say that Teva has $2.5 billion in short term debt on its balance sheet, including $1.85 billion in debt coming due in the next five months. It also has to pay $1.2 billion in the second half of 2013 and an additional $800 million in 2014, mostly to Pfizer Inc. (NYSE: PFE; LSE: PFZ) for infringing its Protonix patent. Another expense is the $1.1 billion (75% of which will be cash costs) for restructuring.

"These near-term obligations compare with Teva’s $1.2 billion in cash and equivalents at June 30 and its $3 billion revolver (partially drawn)," write the analysts. They add, "We believe the company remains committed to its previous strategy of returning $1-2 billion in cash to shareholders and using $2 billion for M&A each year. This effectively uses all of the company free cash flow and leaves no room for delivering."

Published by Globes [online], Israel business news - - on October 31, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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