Moody's Investors Service (Moody's) announced on Friday that it was placing the Baa3 senior unsecured ratings of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) and its subsidiaries under review for downgrade. Moody's took the following actions on Teva Pharmaceutical Industries Ltd and subsidiaries:
Moody's says that Teva faces significant challenges to sustainably reduce its financial leverage to levels acceptable for its current rating over the next couple of years. "Earnings declines in Copaxone will be significant, potentially exceeding lost earnings that Moody's had earlier anticipated. At the same time, weakness in the US generics business will weigh on Teva for at least the next two years. Moody's recognizes that Teva's announced restructuring plan resulting in drastic cost cuts and a suspension of its dividend are credit positive. However the company has now said that it will not consider other actions -- such as equity raises."
Moody's review will focus on the timing and execution risk of achieving $3 billion in cost savings, the potential negative ramifications of drastic cost cuts on things such as R&D productivity and quality control, and the impact of the restructuring on cash flows and leverage through 2019.
Moody's sums up by saying, "Teva's Baa3 rating (under review for downgrade) reflects its significant scale, global diversity, and position as the world's largest generic drug company, as well as one of the largest manufacturers of active pharmaceutical ingredients. It is also supported by strong, albeit declining, cash flow. The rating is constrained by Teva's high financial leverage and high profit concentration in Copaxone."
In early November, Fitch cut its rating for Teva from BBB- to BB, which is below investment grade.
Published by Globes [online], Israel business news - www.globes-online.com - on December 17, 2017
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