International credit rating agency Fitch has downgraded its rating for Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) debt from BB to BB- (a junk rating, like the previous rating), and has retained a negative rating outlook.
Fitch points out that Teva's debt stood at $28.7 billion at the end of the first quarter. The rating downgrade reflects Fitch's estimate that Teva's leverage, in terms of the ratio of gross debt to EBITDA, will remain above 5 even after 2020, because of slower than expected growth in revenue, challenges on the costs side, erosion in generic drug prices, and legal settlements. The rating outlook is liable to remain negative until the leverage ratio falls below five and unless Teva resolves its legal exposure without materially harming its financial flexibility.
Fitch believes that the ageing of the population in developed markets and greater access to healthcare services in developing markets will support expansion of Teva's business, but that price erosion will have a materially negative effect in the short term.
On Teva's cost-cutting program, Fitch says that it has the potential to stabilize Teva's business and offset the sharp fall in revenue, but that even if the company manages to realize the full benefit of the program, it will still face substantial challenges to growth and in its cost structure.
After rallying last week, Teva's share price is down by more than 4% on the Tel Aviv Stock Exchange this morning.
Published by Globes, Israel business news - en.globes.co.il - on June 10, 2019
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