Photographer: Akos Stiller/Bloomberg

Teva's Debt Cut to Junk by Moody's, Adding to Drugmaker's Woes

  • Israeli pharmaceutical giant has $32 billion debt pile
  • Competition for key drug, generic pressures compound strain

Teva Pharmaceutical Industries Ltd.’s credit rating was cut into junk territory by Moody’s Investors Service, adding to the company’s woes as revenue from its bestselling drug drops and it sells assets to pay down debt.

Moody’s said it lowered Teva’s corporate-credit rating two notches to Ba2, the second highest junk rating. The drugmaker had about $28 billion of bonds as of Sept. 30.

Getting cut to junk status can increase a company’s borrowing costs. Moody’s is the second bond grader to downgrade the company to speculative grade, which can be a bruising rating change for a borrower because many investment-grade investors cannot hold bonds from a company that has two or more high-yield ratings.

In this case, the company’s bonds already traded as if they were junk rated, because traders had dumped the securities in anticipation of the company losing its investment-grade status. Teva’s 4.1 percent bonds due 2046 fell 0.64 cents on the dollar to 76.85 Friday at 4:41 p.m. in New York, according to Trace bond-price data.

"This has been something that’s been been in the cooker for awhile," said Bloomberg Intelligence analyst Mike Holland, who wrote in a November report that Moody’s or S&P may follow Fitch’s downgrade.

Teva’s financial headaches date to its ill-timed $41 billion buyout of Allergan Plc’s generics business in August 2016. That deal left the company with a much higher debt load, a figure that is now around $32 billion, compared with its current equity market value of around $21 billion.

The drugmaker’s problems have been compounded recently by weakening sales of its multiple sclerosis drug Copaxone, which at one time had accounted for nearly one-fifth of its overall revenue. Rival Mylan NV began selling a cheaper version of Copaxone in October.

At the same time, Teva’s generic-drug business has been squeezed by intense competition and falling prices in the U.S. market. In November, Fitch Ratings’ cut Teva’s credit rating to junk, citing “significant operational stress.”

New Leader

Chief Executive Officer Kare Schultz, hired late last year, has been reviewing the company’s operations, cutting expenses, and setting plans to eliminate 25 percent of the company’s workforce. He said this week at the J.P. Morgan Healthcare Conference in San Francisco that he plans to focus on how profitable Teva’s drugs are, and not just on top-line sales.

Schultz also said at the conference that the drugmaker isn’t planning any big deals.

S&P Global Ratings grades Teva’s debt at BBB-, the lowest investment-grade level.

— With assistance by Claire Boston

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