Fitch Rates Mylan's Euro Bond Offering 'BBB-'

CHICAGO--()--Fitch Ratings has assigned a 'BBB-' rating to Mylan N.V.'s senior unsecured Euro bond offering. Proceeds are expected to be used to refinance debt at Mylan subsidiaries and to pay related fees and expenses, as well as for general corporate purposes.

A full list of Mylan's current ratings follows at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

Diversified, Scaled Operations: Mylan is a well-diversified top-three global generic drug firm. Scale and diversification are important for generic drug companies to maintain stable and durable margins, especially given recent large-scale consolidation of generic drug purchasing groups.

Aggressive Capital Deployment: In recent years Mylan has shown its willingness to aggressively deploy capital for acquisitions. Near-term M&A is expected to be more targeted, as Fitch believes the firm is committed to maintaining its investment grade ratings.

Elevated Leverage Expected to Decline: De-leveraging is expected to result in gross debt/EBITDA trending below 3.5x by year-end 2017, owing to decent underlying EBITDA growth and total debt reductions. Pro forma gross debt/EBITDA is above 4x following the largely debt-financed acquisition of Meda.

EpiPen Risk, Pressure: Introduction of Mylan's own generic version of EpiPen will result in incrementally lower EBITDA contributions going forward. Furthermore, uncertainties related to ongoing legal and government investigations and the recently announced Medicaid settlement add potential event risk to the credit profile.

Favorable Industry Outlook: Fitch's outlook for global generic pharma, particularly the largest players, is generally favorable. Growth opportunities exist through increasing generic penetration in many European markets, aging populations in developed markets, and improving access to healthcare in emerging markets.

KEY ASSUMPTIONS

The following incorporate Fitch's base case assumptions for Mylan:

--Double-digit top-line growth in 2016 and 2017, owing to recent acquisitions and solid underlying growth in the generics business.

--Relatively flat EBITDA margins in 2016, with some pressure in 2017 due to lower EpiPen sales and margins. Biosimilar launches could improve this assumption.

--Operating cash flows around $2.3 billion to $2.7 billion in 2016 with capex of $400 million to $500 million, resulting in FCF of $1.9 billion to $2.2 billion.

--Targeted M&A in the context of de-leveraging toward 3x by year-end 2017.

RATING SENSITIVITIES

Negative rating pressure would likely be the result of management's abandoning its relatively recent commitment to operating within the context of investment grade ratings, demonstrated by a willingness to sustain gross debt/EBITDA near 3.5x. Failure to launch meaningful new products or greater EpiPen pressures than currently contemplated, including additional large cash outlays, could also exert negative rating pressures.

An upgrade to 'BBB' is unlikely over the ratings horizon, given the firm's demonstrated willingness to add meaningful leverage to the balance sheet for M&A and ongoing EpiPen uncertainties. Top-line growth and/or margin expansion in excess of Fitch's base case, particularly from successful launches of key products like generic Advair, could contribute to positive ratings momentum in the 2017+ timeframe, depending on capital deployment in the meantime. A commitment to operating with debt leverage near 2.5x could also support 'BBB' ratings.

LIQUIDITY

Liquidity is adequate, and FCF is expected to keep step with relatively well-laddered debt maturities. At Sept. 30, 2016, Mylan had $1.26 billion in cash balances and full availability under its $1.65 billion revolver and $400 million receivables facility.

FULL LIST OF RATINGS

Fitch currently rates Mylan as follows:

Mylan N.V.

--Long-Term Issuer Default Rating 'BBB-';

--Senior unsecured notes 'BBB-'.

Mylan, Inc.

--Senior unsecured bank facility 'BBB-';

--Senior unsecured notes 'BBB-'.

The Rating Outlook is Stable.

Date of Relevant Rating Committee: Feb. 11, 2016

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015)

https://www.fitchratings.com/site/re/869362

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+1-312-368-3169
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Kirby, CFA
Director
+1-312-368-3147
or
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Megan Neuberger
Managing Director
+1-212-908-0501
or
Media Relations
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings, Inc.
Jacob Bostwick, CPA
Director
+1-312-368-3169
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Kirby, CFA
Director
+1-312-368-3147
or
Committee Chairperson
Megan Neuberger
Managing Director
+1-212-908-0501
or
Media Relations
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com