S&P cuts Teva's rating on rising litigation risks

Teva Photo: Sivan Faraj

S&P is lowering Teva's credit rating to BB- from BB but gives a stable outlook due to stabilization of revenue and EBITDA.

Analysts at international ratings agency S&P have lowered the rating of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) because, "Teva is facing rising risks from a variety of lawsuits, including potential for material liabilities in cases related to opioids, price-fixing and anti-kick laws. We also see potential for these developments to harm the company's reputation, putting the company at a competitive disadvantage."

S&P's credit analysts add, "We are raising our estimate of legal liabilities (which we include in our measure of adjusted debt) to about $2.5 billion to $3 billion, (from $1.6 billion recorded on the balance sheet in June 2020), following recent developments with plaintiffs. This creates further pressure on credit metrics which were already weak for the rating."

"Given already high debt leverage, we expect the substantial debt maturities and legal settlements over the next few years to absorb the company's free cash flow and constrain its ability to invest in growth opportunities. We expect this will weaken the company's competitive advantage."

As a result, S&P continues, "We are lowering our long-term issuer credit rating to 'BB-', from 'BB' and removing the rating from CreditWatch where we placed them with negative implications on Oct. 24, 2019. At the same time, we are lowering the issue-level ratings on the $25 billion of unsecured debt to 'BB-' from 'BB'.

But S&P analysts give the Israeli pharmaceutical company a stable outlook. "Our stable outlook reflects recent stabilization of revenue and EBITDA in both the generic and branded businesses, following several years of decline. It also reflects our confidence in the company's commitment to deleveraging, while acknowledging constraints in doing so given our expectation for substantial legal settlements and the need to invest in opportunities to retain the company's competitive advantage."

Published by Globes, Israel business news - en.globes.co.il - on September 6, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Teva Photo: Sivan Faraj
Teva Photo: Sivan Faraj
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