Teva’s Working With Evercore to Review Debt Options

Updated on
  • Executives met with lenders to discuss loosening credit terms
  • Options include paring revolving facility, extending loan term

Teva Pharmaceutical Industries Ltd.’s new Chief Executive Officer Kare Schultz is working with advisory firm Evercore Inc. to review options for the beleaguered drugmaker’s outstanding debt, according to people familiar with the matter.

Executives from the Israeli company including Chief Financial Officer Mike McClellan have met with the main lenders in recent weeks to assess options including shrinking a revolving credit facility and extending the repayment period for some loans, the people said, asking not to be identified because the deliberations are private. Teva may also seek to reset some debt covenants and extend bond maturities, the people said. The stock rose in New York.

The world’s biggest maker of copycat drugs, saddled with almost $35 billion in debt, may launch the refinancing plans as early as in January, the people said. No final decision has been made on the debt proposals, which may change or include other options, the people said. While lenders realize the company will take at least two or three years to recover, they are welcoming efforts to reduce debt load and cut expenses, the people said.

“We’re in constant discussions with our banks and rating agencies and prudently taking all measures to address our financial situation,” a spokeswoman for Petach Tikva, Israel-based Teva said in response to questions. A representative for Evercore didn’t immediately return calls seeking comment.

Stock Gains

Shares of Teva rose as much as 1.7 percent before trading up 0.4 percent to $16.50 as of 10:16 a.m. in New York. That pared the decline this year to about 54 percent, valuing the firm at about $16.8 billion.

Debt-ridden Teva is considering cutting as many as 10,000 jobs and reducing expenses by $1.5 billion to $2 billion over the next two years, with a little less than half of the cost cuts linked to research and development spending, people familiar with the matter have said. Schultz has said he’ll present a detailed strategy in mid-December for Teva’s recovery.

Seeking ways to pay back almost $35 billion in debt, Teva has been selling assets, closing factories and firing employees in recent quarters following an ill-timed $40.5 billion acquisition in the generics industry. The company was forced on Nov. 2 to slash its 2017 profit forecast for a third time, pare its dividend, signal it may sell new shares, and reduce the goal for paying down debt this year. Teva’s stock plummeted 20 percent following the announcement, on Schultz’s second day on the job, and hit a 17-year low.

Credit-rating firms are closely watching Schultz’s moves, with the Israeli drugmaker’s status as an investment grade company hanging in the balance. In November, Fitch Ratings cut it to junk, citing the “significant operational stress” the company faces at a time when it needs to pay down debt. Both Standard & Poor’s and Moody’s Investors Service have assigned it the lowest investment-grade rating, warning that another downgrade is possible.

McClellan said that a downgrade to junk would lift the interest rates on Teva’s $6 billion term loans by 0.25 percent. The company may look to refinance the $13.5 billion of bonds due in the next three years, in which case the rating cut would tack on up 1.5 percent to Teva’s financing costs, he added.

— With assistance by Neil Denslow

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