Fitch: Allergan Purchase by Actavis Would Pressure Ratings

CHICAGO--()--Allergan's ratings remain on Rating Watch Negative following Actavis plc's (Actavis) announcement that it plans to acquire Allergan for approximately $66 billion. Allergan presently has $2.1 billion of outstanding debt.

A complete list of ratings is provided at the end of this release.

KEY RATING DRIVERS

Earlier today, Fitch affirmed Actavis' 'BBB-' rating, with a Stable Rating Outlook. This rating action assumes that the terms of the proposed transaction and the plan to finance it are substantially unchanged at the close of the acquisition, which is expected by the second quarter of 2015.

Assuming the transaction proceeds, the ultimate affect on Allegan's 'A+' rating will depend upon Fitch's assessment of the legal, operational and strategic linkages between the two companies. Even in the absence of legal guarantees resulting in the Allergan debt ranking substantially similar to the existing debt of Actavis, it is likely the ratings will be equalized, due to the expected depth of the operational integration and strategic importance of the Allergan products to the combined company.

RATING SENSITIVITIES

A downgrade would arise upon Actavis' acquisition of Allergan under the present terms of the offer. Fitch sees pro forma gross debt leverage at the combined entity of 4.8x, before synergies, at the transaction close. The leverage level may fall to 3.5x or lower within 18months after the close of the transaction, but the level is indicative of a 'BBB-' rated entity.

Fitch does not currently expect positive rating action given the proposed acquisition offer from Actavis.

On a standalone basis, Allergan's promising organic revenue and earnings growth outlooks backstopped by a solid intellectual property position provide stability to the current ratings. In addition, Fitch sees the company generating improving margins given its current restructuring initiatives as well as its proven ability to flex its operating cost base in the event of demand pressures stemming from secular headwinds.

Allergan ratings currently on Rating Watch Negative:

--Issuer Default Rating (IDR), 'A+';

--Senior unsecured debt, 'A+';

--Bank loan, 'A+';

--Short-term IDR, 'F1';

--Commercial paper, 'F1'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Pharmaceutical Companies - Sector Credit Factors' dated Aug. 9, 2012;

--'Corporate Rating Methodology' dated May 28, 2014.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating Pharmaceutical Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684459

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Contacts

Fitch Ratings
Primary Analyst
Michael Zbinovec
Senior Director
+1-312-368-3164
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Kirby, CFA
Director
+1-312-368-3147
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Michael Zbinovec
Senior Director
+1-312-368-3164
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Kirby, CFA
Director
+1-312-368-3147
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com