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TMCNet:  Fitch Rates New Actavis Bonds 'BBB-'; Outlook Stable

[June 10, 2014]

Fitch Rates New Actavis Bonds 'BBB-'; Outlook Stable

CHICAGO --(Business Wire)--

Fitch Ratings has assigned a 'BBB-' rating to new senior unsecured bonds to be issued by an indirect subsidiary of Actavis plc (NYSE: ACT). Fitch has also assigned a 'BBB-' Issuer Default Rating (IDR) to Actavis Funding SCS (News - Alert), the issuer of the bonds, and Warner Chilcott Limited. ACT's IDR is 'BBB-', with a Stable Outlook. A full list of ratings for ACT follows at the end of this release.

The new unsecured notes will be issued by Actavis Funding SCS and are expected to benefit from substantially similar upstream and downstream guarantees as the already-existing credit facilities borrowed by Actavis Capital S.a r.l., as well as a guarantee from Actavis Capital S.a r.l itself. As a result, Fitch believes the new notes will be pari passu with the rest of the unsecured debt in the capital structure.

Proceeds from the issuance are expected to be used to finance a portion of the acquisition of Forest Laboratories, Inc. (Forest) and to repurchase the $1.25 billion of senior unsecured notes issued by a subsidiary of legacy Warner Chilcott plc.

KEY RATING DRIVERS

-- The combination of ACT and Forest is strategically compelling. The deal will result in a specialty business that is stronger competitively, particularly in the U.S., and that is expected to produce significant sales and cost synergies over the medium term.

-- Recent investments in the specialty pharmaceuticals segment, including the Forest acquisition, should result in higher revenue growth and profitability for ACT versus the legacy generic pharmaceuticals business. However, the short timeframe between recent acquisitions makes it difficult to estimate the company's run-rate EBITDA and cash flow.

-- Actavis has a history of successful business integration accompanied by debt paydown. However, Fitch is concerned that integration challenges could result from proximity of the Forest deal to ACT's purchase of Warner Chilcott plc in 2013, and further complicated by the purchases by Forest of Aptalis Holdings, Inc. and Furiex Pharmaceuticals in 2014.

-- Actavis also has a history of directing cash flows toward debt repayment following large debt-funded acquisitions. Fitch expects gross debt leverage of 3x by year-end 2015 and believes this target is achievable primarily on the basis of EBITDA growth. The firm's strong cash generating ability will enable further debt repayment in the event of less-than-expected EBITDA growth.

-- Fitch sees ACT's base generics pharmaceutical business benefiting from a moderately favorable operating environment for the global generic drug industry over the next several years. Gradually improving generic penetration rates in many developed European countries, the opportunity for continued expansion into developing markets, and the prospects of a burgeoning biosimilars market in the 2016 timeframe and beyond drive this view.

-- The slowing pace of branded-to-generic conversions post-2014/2015, likely cost pressures from growing drug purchasers, and generally constrained healthcare reimbursement globally are the most notable headwinds.

RATING SENSITIVITIES

Maintenance of 'BBB-' ratings will generally require ACT to operate with gross unadjusted debt leverage of around 3x or below, accompanied by consistent base business growth and meaningfully positive free cash flow (FCF). Successful integration of both Warner Chilcott and Forest will also support the current 'BBB-' ratings.

Ratings flexibility will be limited in the near term. Maintenance of the 'BBB-' rating is based on Fitch's expectation that cash flows will be directed toward debt repayment as necessary to meet the 3x leverage target by the end of 2015. Setbacks in the integration of Forest and its own recently acquired businesses, or other cash payouts (i.e. litigation- or regulation-related) that hinder ACT's ability to meet the leverage target, could pressur the 'BBB-' ratings.


A negative rating action could result from a further leveraging transaction during the de-leveraging and integration timeframe set above. Deteriorating operations or severely negative pricing trends leading to gross debt leverage that is expected to be sustained above 3x and/or FCF that is significantly reduced from current levels could drive a downgrade to 'BB+'.

A positive rating action is not expected in the near term, but could be precipitated by Fitch's expectation for gross debt leverage to be sustained below 2.5x, accompanied by consistent FCF margin of at least 6%. Additional de-leveraging and improved cash flows in the near- to intermediate-term could result from better-than-expected synergies and/or new product launches.

Fitch has assigned the following new ratings:

Warner Chilcott Limited

-- IDR 'BBB-'.

Actavis Funding SCS

-- IDR 'BBB-';

-- Senior unsecured notes 'BBB-'.

The Rating Outlook is Stable.

Fitch currently rates ACT as follows:

Actavis, plc

--IDR 'BBB-'.

Actavis Capital S.a r.l.

--IDR 'BBB-'.

--Unsecured bank facility 'BBB-'.

Actavis, Inc.

--IDR 'BBB-';

--Unsecured notes 'BBB-'.

WC LuxCo S.a r.l.

--IDR 'BBB-';

--Unsecured bank facility 'BBB-'.

Warner Chilcott Corporation

--IDR 'BBB-'.

WC Company LLC

--IDR 'BBB-';

--Unsecured bonds 'BBB-'.

Warner Chilcott Finance LLC

--IDR 'BBB-'.

The Rating Outlook for each IDR is Stable.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Fitch Affirms Actavis at 'BBB-' on Forest Labs Acquisition; Outlook Stable' (Feb. 18, 2014);

--'Fitch Assigns Initial 'BBB-' Ratings to Actavis plc & Subsidiaries; Outlook Stable' (Oct. 1, 2013);

--'Fitch Affirms Actavis' at 'BBB-'; Outlook Stable (Sept. 25, 2013);

--'Fitch: Warner Chilcott Deal In Line with Actavis' 'BBB-' Ratings' (May 20, 2013);

--'Global Pharmaceutical R&D Pipeline - Evolving Trends in Diabetes and Cancer Treatments' (May 13, 2014);

--'U.S. Healthcare Stats Quarterly: Fourth-Quarter 2013' (April 25, 2014);

--'Trekking the Path to Biosimilars - Forging Ahead' (Aug. 5, 2013).

Applicable Criteria and Related Research:

U.S. Healthcare Stats Quarterly - Fourth-Quarter 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=745895

Trekking the Path to Biosimilars -- Forging Ahead

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714715

Global Pharmaceutical R&D Pipeline

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=728550

Global Pharmaceutical R&D Pipeline - Evolving Trends in Diabetes and Cancer Treatments

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748020

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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833877

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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