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Mallinckrodt plc ‘BB-‘ Rating Taken Off CreditWatch And Affirmed; Outlook Negative

          NEW YORK (S&P Global Ratings) Jan. 25, 2018--S&P Global Ratings today affirmed its 'BB-' corporate credit rating on Mallinckrodt Plc and all issue-level ratings except for one recovery rating. We also removed the ratings from CreditWatch, where we placed them with negative implications on Dec. 29, 2017. 
          The outlook is negative. In addition, we revised our recovery rating on Mallinckrodt's senior unsecured debt to '4' from '3. This reflects our expectation of average (rounded estimate: 40%) recovery in the event of payment default. The recovery rating on Mallinckrodt's senior secured debt remains '1', reflecting our expectation of very high (rounded estimate: 95%) recovery in the event of payment default. The '6' recovery rating on Mallinckrodt's subordinated debt is also unchanged and reflects our expectation of negligible (rounded estimate: 0%) recovery in the event of payment default.
          The recovery analysis does not include the $500 million term loan that we expect Mallinckrodt to issue soon to fund the Sucampo acquisition. We will update our recovery analysis if the company issues this new debt. Today's rating actions reflect our expectation that Mallinckrodt's 2018 leverage will increase to about 5x following the Sucampo acquisition but will improve to below 5x in the first half of 2019 and 4.7x by the end of 2019. Based on Mallinckrodt's strong track record of deleveraging after the previous acquisitions, we remain confident in the company's commitment to reducing leverage before pursuing any others. As such, we expect Mallinckrodt to limit its 2018 business-development and share-repurchase activities and direct internally generated cash flow to reduce leverage. We also recognize Mallinckrodt's strong track record of successfully integrating acquisitions and expect a smooth integration of Sucampo.
          The negative outlook reflects credit measures that are weak for the rating and the risk that the unfavorable reimbursement environment for H.P. Acthar Gel or potential competition for either Acthar Gel or Inomax could result in revenue and profitability declines beyond our current projections, with leverage remaining above 5x for more than a year. While we expect Mallinckrodt's financial policy to remain relatively conservative in 2018 and project that the company will limit its business-development activity and share repurchases until it reduces leverage to below 5x, we believe the multiple risks associated with the company's key products increase the uncertainty about the projected leverage reduction.